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MarketScreener Homepage  >  Equities  >  Nyse  >  Southern Company    SO

SOUTHERN COMPANY

(SO)
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Southern : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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10/30/2019 | 05:14am EST

THIRD QUARTER 2019 vs. THIRD QUARTER 2018

                                      AND
                    YEAR-TO-DATE 2019 vs. YEAR-TO-DATE 2018


OVERVIEW
Southern Company is a holding company that owns all of the common stock of the
traditional electric operating companies and the parent entities of Southern
Power and Southern Company Gas and owns other direct and indirect subsidiaries.
Discussion of the results of operations is focused on the Southern Company
system's primary businesses of electricity sales by the traditional electric
operating companies and Southern Power and the distribution of natural gas by
Southern Company Gas. The traditional electric operating companies are
vertically integrated utilities providing electric service in three Southeastern
states. Southern Power develops, constructs, acquires, owns, and manages power
generation assets, including renewable energy projects, and sells electricity at
market-based rates in the wholesale market. Southern Company Gas distributes
natural gas through its natural gas distribution utilities and is involved in
several other complementary businesses including gas pipeline investments,
wholesale gas services, and gas marketing services. The Southern Company
system's other business activities include providing energy solutions, such as
distributed energy infrastructure and energy efficiency products and services,
to customers. Other business activities also include investments in
telecommunications, leveraged lease projects, and gas storage facilities. For
additional information, see BUSINESS - "The Southern Company System -
Traditional Electric Operating Companies," " - Southern Power," " - Southern
Company Gas," and " - Other Businesses" in Item 1 of the Form 10-K.
On January 1, 2019, Southern Company completed the sale of Gulf Power to NextEra
Energy for an aggregate cash purchase price of approximately $5.8 billion (less
$1.3 billion of indebtedness assumed), subject to customary working capital
adjustments. The preliminary gain associated with the sale of Gulf Power totaled
$2.5 billion pre-tax ($1.3 billion after tax). See Note (K) to the Condensed
Financial Statements under "Southern Company" herein for additional information.
Georgia Power and Atlanta Gas Light each filed base rate cases with the Georgia
PSC in June 2019. Georgia Power's filing, as modified, includes a three-year
Alternate Rate Plan with requested rate increases totaling $560 million, $144
million, and $233 million effective January 1, 2020, January 1, 2021, and
January 1, 2022, respectively. Atlanta Gas Light's filing, as modified, requests
a $93 million increase in annual base rate revenues effective January 1, 2020.
These two rate cases are expected to conclude in December 2019. In addition,
Mississippi Power is scheduled to file a base rate case with the Mississippi PSC
by the end of 2019. The ultimate outcome of these matters cannot be determined
at this time. On October 2, 2019, the Illinois Commission approved a $168
million annual base rate increase for Nicor Gas based on a ROE of 9.73% and an
equity ratio of 54.2%, which became effective October 8, 2019. See FUTURE
EARNINGS POTENTIAL - "Regulatory Matters" herein and Note 2 to the financial
statements in Item 8 of the Form 10-K for additional information.
Southern Company continues to focus on several key performance indicators. These
indicators include, but are not limited to, customer satisfaction, plant
availability, electric and natural gas system reliability, execution of major
construction projects, and earnings per share.
Plant Vogtle Units 3 and 4 Status
In 2009, the Georgia PSC certified construction of Plant Vogtle Units 3 and 4
(with electric generating capacity of approximately 1,100 MWs each). Georgia
Power holds a 45.7% ownership interest in Plant Vogtle Units 3 and 4. In March
2017, the EPC Contractor filed for bankruptcy protection under Chapter 11 of the
U.S. Bankruptcy Code. In December 2017, the Georgia PSC approved Georgia Power's
recommendation to continue construction. The current expected in-service dates
remain November 2021 for Unit 3 and November 2022 for Unit 4.

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                   SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In the second quarter 2018, Georgia Power revised its total project capital cost
forecast to complete construction and start-up of Plant Vogtle Units 3 and 4 to
$8.4 billion (net of $1.7 billion received under the Guarantee Settlement
Agreement and approximately $188 million in related Customer Refunds), with
respect to Georgia Power's ownership interest.
As a result of the increase in the total project capital cost forecast and
Georgia Power's decision not to seek rate recovery of the increase in the base
capital costs, the holders of at least 90% of the ownership interests in Plant
Vogtle Units 3 and 4 were required to vote to continue construction. In
September 2018, the Vogtle Owners unanimously voted to continue construction of
Plant Vogtle Units 3 and 4. In connection with the vote to continue
construction, Georgia Power entered into (i) a binding term sheet (Vogtle Owner
Term Sheet) with the other Vogtle Owners and certain of MEAG's wholly-owned
subsidiaries, including MEAG Power SPVJ, LLC (MEAG SPVJ), to take certain
actions which partially mitigate potential financial exposure for the other
Vogtle Owners and (ii) a term sheet (MEAG Term Sheet) with MEAG and MEAG SPVJ to
provide funding with respect to MEAG SPVJ's ownership interest in Plant Vogtle
Units 3 and 4 under certain circumstances. On January 14, 2019, Georgia Power,
MEAG, and MEAG SPVJ entered into an agreement to implement the provisions of the
MEAG Term Sheet. On February 18, 2019, Georgia Power, the other Vogtle Owners,
and certain of MEAG's wholly-owned subsidiaries entered into certain amendments
to their joint ownership agreements to implement the provisions of the Vogtle
Owner Term Sheet.
In April 2019, Southern Nuclear completed a cost and schedule validation process
to verify and update quantities of commodities remaining to install, labor hours
to install remaining quantities and related productivity, testing and system
turnover requirements, and forecasted staffing needs and related costs. This
process confirmed the total estimated project capital cost forecast for Plant
Vogtle Units 3 and 4. The expected in-service dates of November 2021 for Unit 3
and November 2022 for Unit 4, as previously approved by the Georgia PSC, remain
unchanged.
In March 2019, Georgia Power entered into the Amended and Restated Loan
Guarantee Agreement with the DOE, under which the proceeds of borrowings may be
used to reimburse Georgia Power for Eligible Project Costs incurred in
connection with its construction of Plant Vogtle Units 3 and 4, up to
approximately $5.130 billion. At September 30, 2019, Georgia Power had a total
of $3.46 billion of borrowings outstanding under the related multi-advance
credit facilities.
The ultimate outcome of these matters cannot be determined at this time.
See FUTURE EARNINGS POTENTIAL - "Construction Program - Nuclear Construction"
and Note (F) to the Condensed Financial Statements under "DOE Loan Guarantee
Borrowings" herein for additional information.
RESULTS OF OPERATIONS
Net Income
 Third Quarter 2019 vs. Third Quarter 2018      Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
        $152                   13.1                  $2,350                  120.6


Consolidated net income attributable to Southern Company was $1.3 billion ($1.26
per share) for the third quarter 2019 compared to $1.2 billion ($1.14 per share)
for the corresponding period in 2018. The increase was primarily due to
increased retail revenues at Alabama Power primarily due to the impact of
customer bill credits issued in 2018 related to the Tax Reform Legislation and
at Georgia Power primarily due to higher contributions from commercial and
industrial customers with variable demand-driven pricing as well as warmer
weather in the third quarter 2019 when compared to the corresponding period in
2018, partially offset by a reduction in customer usage at Alabama Power and
Georgia Power. The increase in net income was also partially offset by increased
impairment charges primarily related to a third quarter 2019 charge recorded at
Southern Company Gas related to a natural gas storage facility.

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                   SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Consolidated net income attributable to Southern Company was $4.3 billion ($4.12
per share) for year-to-date 2019 compared to $1.9 billion ($1.92 per share) for
the corresponding period in 2018. The increase was primarily due to the $2.5
billion ($1.3 billion after tax) gain on the sale of Gulf Power in 2019 and a
$1.1 billion ($0.8 billion after tax) charge in the second quarter 2018 for an
estimated probable loss related to Georgia Power's construction of Plant Vogtle
Units 3 and 4. See Note (K) to the Condensed Financial Statements under
"Southern Company" herein and Note 2 to the financial statements under "Georgia
Power - Nuclear Construction" in Item 8 of the Form 10-K for additional
information.
Retail Electric Revenues
 Third Quarter 2019 vs. Third Quarter 2018      Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
       $(93)                   (2.0)                 $(777)                  (6.5)


In the third quarter 2019, retail electric revenues were $4.5 billion compared
to $4.6 billion for the corresponding period in 2018. For year-to-date 2019,
retail electric revenues were $11.1 billion compared to $11.9 billion for the
corresponding period in 2018.
Details of the changes in retail electric revenues were as follows:
                                     Third Quarter 2019                     

Year-to-Date 2019

                              (in millions)        (% change)       (in millions)        (% change)
Retail electric - prior
year                        $        4,605$       11,913
Estimated change
resulting from -
Rates and pricing                      242              5.3  %                425             3.6  %
Sales decline                          (71 )           (1.6 )                (111 )          (0.9 )
Weather                                125              2.7                    68             0.5
Fuel and other cost
recovery                               (48 )           (1.0 )                (227 )          (1.9 )
Gulf Power disposition                (341 )           (7.4 )                (932 )          (7.8 )
Retail electric - current
year                        $        4,512             (2.0 )%     $       11,136            (6.5 )%


Revenues associated with changes in rates and pricing increased in the third
quarter and year-to-date 2019 when compared to the corresponding periods in 2018
primarily due to the impacts of Alabama Power's customer bill credits issued in
2018 related to the Tax Reform Legislation, additional capital investments
recovered through Alabama Power's Rate CNP Compliance, higher contributions from
Georgia Power's commercial and industrial customers with variable demand-driven
pricing, an increase in Georgia Power's NCCR tariff effective January 1, 2019,
and increases in Mississippi Power's PEP and ECO Plan rates that became
effective for the first billing cycle of September 2018.
See Note 2 to the financial statements under "Alabama Power," "Georgia Power,"
and "Mississippi Power" in Item 8 of the Form 10-K and Note (B) to the Condensed
Financial Statements herein for additional information.
Revenues attributable to changes in sales decreased in the third quarter and
year-to-date 2019 when compared to the corresponding periods in 2018.
Weather-adjusted residential KWH sales decreased 1.9% and 0.9% in the third
quarter and year-to-date 2019, respectively, when compared to the corresponding
periods in 2018 primarily due to decreased customer usage at Alabama Power and
Georgia Power primarily resulting from an increase in energy efficient
residential appliances and energy saving initiatives, partially offset by
customer growth. Weather-adjusted commercial KWH sales decreased 2.1% and 1.7%
in the third quarter and year-to-date 2019, respectively, when compared to the
corresponding periods in 2018 primarily due to decreased customer usage
resulting from an increase in energy saving initiatives. Industrial KWH sales
decreased 3.3% and 2.5% in the third quarter and year-to-date 2019,
respectively, when compared to the corresponding periods in 2018 as a result of
a decrease in demand

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                   SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

resulting from changes in production levels primarily in the primary metals,
textile, stone, clay, and glass, paper, and chemicals sectors.
Fuel and other cost recovery revenues decreased $48 million and $227 million in
the third quarter and year-to-date 2019, respectively, compared to the
corresponding periods in 2018. For year-to-date 2019, the decrease was primarily
due to lower generation costs at Alabama Power and Georgia Power and lower
recoverable fuel costs at Mississippi Power. Electric rates for the traditional
electric operating companies include provisions to adjust billings for
fluctuations in fuel costs, including the energy component of purchased power
costs. Under these provisions, fuel revenues generally equal fuel expenses,
including the energy component of PPA costs, and do not affect net income. The
traditional electric operating companies each have one or more regulatory
mechanisms to recover other costs such as environmental and other compliance
costs, storm damage, new plants, and PPA capacity costs.
Wholesale Electric Revenues
 Third Quarter 2019 vs. Third Quarter 2018     Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
       $(73)                  (10.5)                 $(270)                 (13.9)


Wholesale electric revenues consist of PPAs and short-term opportunity sales.
Wholesale electric revenues from PPAs (other than solar and wind PPAs) have both
capacity and energy components. Capacity revenues generally represent the
greatest contribution to net income and are designed to provide recovery of
fixed costs plus a return on investment. Energy revenues will vary depending on
fuel prices, the market prices of wholesale energy compared to the Southern
Company system's generation, demand for energy within the Southern Company
system's electric service territory, and the availability of the Southern
Company system's generation. Increases and decreases in energy revenues that are
driven by fuel prices are accompanied by an increase or decrease in fuel costs
and do not have a significant impact on net income. Energy sales from solar and
wind PPAs do not have a capacity charge and customers either purchase the energy
output of a dedicated renewable facility through an energy charge or through a
fixed price related to the energy. As a result, the ability to recover fixed and
variable operations and maintenance expenses is dependent upon the level of
energy generated from these facilities, which can be impacted by weather
conditions, equipment performance, transmission constraints, and other factors.
Wholesale electric revenues at Mississippi Power include FERC-regulated
municipal and rural association sales under cost-based tariffs as well as
market-based sales. Short-term opportunity sales are made at market-based rates
that generally provide a margin above the Southern Company system's variable
cost to produce the energy.
In the third quarter 2019, wholesale electric revenues were $625 million
compared to $698 million for the corresponding period in 2018. For year-to-date
2019, wholesale electric revenues were $1.7 billion compared to $1.9 billion for
the corresponding period in 2018. The third quarter 2019 decrease was related to
a $44 million decrease in energy revenues and a $29 million decrease in capacity
revenues. The year-to-date 2019 decrease was related to a $204 million decrease
in energy revenues and a $66 million decrease in capacity revenues. Excluding
decreases of $8 million and $21 million of energy revenues for the third quarter
and year-to-date 2019, respectively, related to the sale of Gulf Power, the
decreases in energy revenues primarily related to Southern Power and included a
decrease in non-PPA revenues due to a decrease in the volume of KWHs sold
through short-term sales and a decrease in the market price of energy. These
decreases were also due to lower natural gas prices. The decreases in capacity
revenues primarily related to the sales of Gulf Power and Southern Power's Plant
Oleander and Plant Stanton Unit A in December 2018 and Southern Power's Plant
Nacogdoches in June 2019. See Note (K) to the Condensed Financial Statements
under "Southern Company" and "Southern Power" herein and Note 15 to the
financial statements under "Southern Power - Sales of Natural Gas Plants" in
Item 8 of the Form 10-K for additional information.

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                   SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Natural Gas Revenues

 Third Quarter 2019 vs. Third Quarter 2018      Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
         $6                     1.2                  $(145)                  (5.2)


In the third quarter 2019, natural gas revenues were $498 million compared to
$492 million for the corresponding period in 2018. For year-to-date 2019,
natural gas revenues were $2.7 billion compared to $2.8 billion for the
corresponding period in 2018.
Details of the changes in natural gas revenues were as follows:
                                       Third Quarter 2019                   Year-to-Date 2019
                                  (in millions)      (% change)      (in millions)       (% change)
Natural gas revenues - prior
year                             $        492$        2,806
Estimated change resulting from
-
Infrastructure replacement
programs and base rate changes             15             3.0  %                57           2.0  %
Gas costs and other cost
recovery                                  (14 )          (2.8 )                 35           1.2
Weather                                    (1 )          (0.2 )                 (1 )           -
Wholesale gas services                      6             1.2                  (10 )        (0.4 )
Southern Company Gas
Dispositions                               (8 )          (1.6 )               (245 )        (8.7 )
Other                                       8             1.6                   19           0.7
Natural gas revenues - current
year                             $        498             1.2  %    $       

2,661 (5.2 )%



Revenues attributable to infrastructure replacement programs and base rate
changes at the natural gas distribution utilities increased in the third quarter
and year-to-date 2019 compared to the corresponding periods in 2018 primarily
due to increases of $11 million and $36 million, respectively, at Nicor Gas and
$2 million and $16 million, respectively, at Atlanta Gas Light. These amounts
include the natural gas distribution utilities' continued investments recovered
through infrastructure replacement programs and base rate increases as well as
increases due to the impacts of the Tax Reform Legislation.
Revenues attributable to gas costs and other cost recovery decreased in the
third quarter 2019 and increased year-to-date 2019 compared to the corresponding
periods in 2018. The decrease in the third quarter 2019 is primarily due to
lower natural gas prices and decreased volumes of natural gas sold. The increase
for year-to-date 2019 is primarily due to increased natural gas prices in the
first quarter 2019, partially offset by decreased volumes of natural gas sold
year-to-date 2019. Natural gas distribution rates include provisions to adjust
billings for fluctuations in natural gas costs. Therefore, gas costs recovered
through natural gas revenues generally equal the amount expensed in cost of
natural gas and do not affect net income from the natural gas distribution
utilities.
Revenues attributable to Southern Company Gas' wholesale gas services business
increased in the third quarter 2019 and decreased year-to-date 2019 compared to
the corresponding periods in 2018. The increase in the third quarter 2019 is
primarily due to derivative gains, partially offset by decreased commercial
activity. For year-to-date 2019, the decrease is primarily due to decreased
commercial activity, partially offset by derivative gains.
Other natural gas revenues increased in the third quarter and year-to-date 2019
compared to the corresponding periods in 2018 primarily due to increases in
customers at the natural gas distribution utilities and recovery of prior period
hedge losses at gas marketing services.
See Note (B) to the Condensed Financial Statements herein under "Southern
Company Gas" and Note 2 to the financial statements under "Southern Company Gas
- Rate Proceedings" in Item 8 of the Form 10-K for additional information.

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                   SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Other Revenues

 Third Quarter 2019 vs. Third Quarter 2018      Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
        $(2)                   (1.0)                 $(458)                 (45.5)


For year-to-date 2019, other revenues were $549 million compared to $1.0 billion
for the corresponding period in 2018. This decrease was primarily related to
PowerSecure's 2018 storm restoration services in Puerto Rico.
Fuel and Purchased Power Expenses
                                         Third Quarter 2019                        Year-to-Date 2019
                                                 vs.                                      vs.
                                         Third Quarter 2018                        Year-to-Date 2018
                                  (change in millions)      (% change)     (change in millions)     (% change)
Fuel                           $                (238 )        (18.2)     $              (678 )        (19.3)
Purchased power                                   (3 )        (1.2)                     (135 )        (17.8)
Total fuel and purchased power
expenses                       $                (241 )                   $              (813 )


In the third quarter 2019, total fuel and purchased power expenses were $1.33
billion compared to $1.57 billion for the corresponding period in 2018.
Excluding approximately $148 million associated with the sale of Gulf Power, the
decrease was primarily the result of a $158 million decrease in the average cost
of fuel and purchased power, partially offset by a $65 million net increase in
the aggregate volume of KWHs generated and purchased.
For year-to-date 2019, total fuel and purchased power expenses were $3.5 billion
compared to $4.3 billion for the corresponding period in 2018. Excluding
approximately $373 million associated with the sale of Gulf Power, the decrease
was primarily the result of a $345 million decrease in the average cost of fuel
and purchased power and a $95 million net decrease in the aggregate volume of
KWHs generated and purchased.
Fuel and purchased power energy transactions at the traditional electric
operating companies are generally offset by fuel revenues and do not have a
significant impact on net income. See FUTURE EARNINGS POTENTIAL - "Regulatory
Matters - Fuel Cost Recovery" herein for additional information. Fuel expenses
incurred under Southern Power's PPAs are generally the responsibility of the
counterparties and do not significantly impact net income.

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                   SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Details of the Southern Company system's generation and purchased power were as
follows:
                                         Third      Third
                                        Quarter    Quarter                        Year-to-Date
                                          2019     2018(a)    Year-to-Date 2019     2018(a)
Total generation (in billions of KWHs)     54         53             143    

146

Total purchased power (in billions of
KWHs)                                      6          4              14                11
Sources of generation (percent) -
Gas                                        54         50             51                48
Coal                                       24         28             23                27
Nuclear                                    15         15             16                15
Hydro                                      1          2               4                3
Other                                      6          5               6                7
Cost of fuel, generated (in cents per
net KWH)-
Gas                                       2.25       2.62           2.39              2.65
Coal                                      2.85       2.92           2.93              2.96
Nuclear                                   0.79       0.81           0.79              0.80
Average cost of fuel, generated (in
cents per net KWH)                        2.18       2.42           2.24    

2.43

Average cost of purchased power (in
cents per net KWH)(b)                     5.22       6.18           5.11    

6.14

(a) Excludes Gulf Power, which was sold on January 1, 2019.

(b) Average cost of purchased power includes fuel purchased by the Southern

Company system for tolling agreements where power is generated by the

provider.

Fuel

In the third quarter 2019, fuel expense was $1.1 billion compared to $1.3
billion for the corresponding period in 2018. Excluding approximately $96
million related to Gulf Power in 2018, the decrease was primarily due to a 14.1%
decrease in the average cost of natural gas per KWH generated, a 9.9% decrease
in the volume of KWHs generated by coal, and a 2.4% decrease in the average cost
of coal per KWH generated, partially offset by a 6.7% increase in the volume of
KWHs generated by natural gas.
For year-to-date 2019, fuel expense was $2.8 billion compared to $3.5 billion
for the corresponding period in 2018. Excluding approximately $223 million
related to Gulf Power in 2018, the decrease was primarily due to an 18.1%
decrease in the volume of KWHs generated by coal, a 9.8% decrease in the average
cost of natural gas per KWH generated, and a 1.0% decrease in the average cost
of coal per KWH generated, partially offset by a 4.1% increase in the volume of
KWHs generated by natural gas.
Purchased Power
In the third quarter 2019, purchased power expense was $254 million compared to
$257 million for the corresponding period in 2018. Excluding approximately $53
million associated with Gulf Power, the change was primarily due to a 28.6%
increase in the volume of KWHs purchased, partially offset by a 15.5% decrease
in the average cost per KWH purchased.
For year-to-date 2019, purchased power expense was $625 million compared to $760
million for the corresponding period in 2018. Excluding approximately $150
million associated with Gulf Power, the change was primarily due to an 8.3%
increase in the volume of KWHs purchased, partially offset by a 16.8% decrease
in the average cost per KWH purchased.
See Note (K) to the Condensed Financial Statements under "Southern Company"
herein for information regarding the sale of Gulf Power.

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                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Energy purchases will vary depending on demand for energy within the Southern
Company system's electric service territory, the market prices of wholesale
energy as compared to the cost of the Southern Company system's generation, and
the availability of the Southern Company system's generation.
Cost of Natural Gas
Third Quarter 2019 vs. Third Quarter 2018      Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
       $(25)                  (24.0)                 $(97)                  (9.2)


Excluding Atlanta Gas Light, which does not sell natural gas to end-use
customers, natural gas distribution rates include provisions to adjust billings
for fluctuations in natural gas costs. Therefore, gas costs recovered through
natural gas revenues generally equal the amount expensed in cost of natural gas
and do not affect net income from the natural gas distribution utilities. Cost
of natural gas at the natural gas distribution utilities represented 80% and 85%
of total cost of natural gas for the third quarter and year-to-date 2019,
respectively.
In the third quarter 2019, cost of natural gas was $79 million compared to $104
million for the corresponding period in 2018. Excluding a $2 million decrease
related to the Southern Company Gas Dispositions, cost of natural gas decreased
$23 million. This decrease reflects a 23% decrease in natural gas prices and a
3.3% decrease in the volume of natural gas sold at the natural gas distribution
utilities in the third quarter 2019 compared to the corresponding period in
2018.
For year-to-date 2019, cost of natural gas was $956 million compared to $1.05
billion for the corresponding period in 2018. Excluding a $106 million decrease
related to the Southern Company Gas Dispositions, cost of natural gas increased
$9 million. This increase reflects a 4.9% increase in natural gas prices in the
first quarter 2019, partially offset by a 7.7% decrease in the volume of natural
gas sold at the natural gas distribution utilities year-to-date 2019 compared to
the corresponding period in 2018.
Cost of Other Sales
 Third Quarter 2019 vs. Third Quarter 2018      Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
        $(6)                   (5.0)                 $(372)                 (54.1)

For year-to-date 2019, cost of other sales was $316 million compared to $688 million for the corresponding period in 2018. This decrease was primarily related to PowerSecure's 2018 storm restoration services in Puerto Rico. Other Operations and Maintenance Expenses

 Third Quarter 2019 vs. Third Quarter 2018      Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
       $(112)                  (8.0)                 $(329)                  (7.8)


In the third quarter 2019, other operations and maintenance expenses were $1.3
billion compared to $1.4 billion for the corresponding period in 2018. For
year-to-date 2019, other operations and maintenance expenses were $3.9 billion
compared to $4.2 billion for the corresponding period in 2018. The third quarter
and year-to-date 2019 decreases reflect approximately $82 million and $248
million, respectively, related to Gulf Power in 2018 and $2 million and $65
million, respectively, related to the Southern Company Gas Dispositions. See
Note (K) to the Condensed Financial Statements under "Southern Company" herein
and Note 15 to the financial statements under "Southern Company Gas" in Item 8
of the Form 10-K for additional information.

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                   SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Depreciation and Amortization

 Third Quarter 2019 vs. Third Quarter 2018      Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
       $(27)                   (3.4)                 $(71)                   (3.0)


In the third quarter 2019, depreciation and amortization was $760 million
compared to $787 million for the corresponding period in 2018. For year-to-date
2019, depreciation and amortization was $2.27 billion compared to $2.34 billion
for the corresponding period in 2018. The third quarter and year-to-date 2019
decreases were primarily due to decreases of $48 million and $142 million,
respectively, related to the sale of Gulf Power and decreases of $1 million and
$27 million, respectively, related to the Southern Company Gas Dispositions,
partially offset by increases of $19 million and $81 million, respectively,
related to additional plant in service. The year-to-date 2019 decrease was also
partially offset by increased amortization of $18 million associated with ECO
Plan regulatory assets at Mississippi Power.
Taxes Other Than Income Taxes
 Third Quarter 2019 vs. Third Quarter 2018      Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
       $(16)                   (5.0)                 $(59)                   (6.0)


In the third quarter 2019, taxes other than income taxes were $303 million
compared to $319 million for the corresponding period in 2018. For year-to-date
2019, taxes other than income taxes were $931 million compared to $990 million
for the corresponding period in 2018. These decreases primarily relate to the
sale of Gulf Power, partially offset by an increase in the assessed value of
property at Georgia Power. The year-to-date 2019 decrease was also partially
offset by increases in invested capital tax at Southern Company Gas as a result
of increased infrastructure investments and increased revenue tax expenses.
Estimated Loss on Plants Under Construction
 Third Quarter 2019 vs. Third Quarter 2018      Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
         $3                     N/M                 $(1,095)                (99.1)


N/M - Not meaningful
For year-to-date 2019, estimated loss on plants under construction was $10
million compared to $1.11 billion for the corresponding period in 2018. The
year-to-date 2019 decrease was primarily due to the $1.1 billion charge recorded
in the second quarter 2018 as a result of Georgia Power's revised estimate to
complete construction and start-up of Plant Vogtle Units 3 and 4. The
year-to-date 2019 charges were related to abandonment and closure activities for
the mine and gasifier-related assets of the Kemper IGCC at Mississippi Power.
See Note 2 to the financial statements in Item 8 of the Form 10-K and Note (B)
to the Condensed Financial Statements herein under "Georgia Power - Nuclear
Construction" for additional information.
Impairment Charges
 Third Quarter 2019 vs. Third Quarter 2018      Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
        $74                    205.6                 $(55)                  (27.9)


In the third quarter 2019, an asset impairment charge of $92 million was
recorded at Southern Company Gas related to a natural gas storage facility in
Louisiana and goodwill and asset impairment charges totaling $18 million were
recorded in contemplation of the sale of PowerSecure's lighting business. In the
third quarter 2018, a $36 million

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asset impairment charge was recorded associated with Southern Power's wind
turbine equipment held for development projects.
For year-to-date 2019, an asset impairment charge of $92 million was recorded at
Southern Company Gas related to a natural gas storage facility in Louisiana and
goodwill and asset impairment charges totaling $50 million were recorded related
to the sale of PowerSecure's utility infrastructure services business and in
contemplation of the sale of its lighting business. For year-to-date 2018, asset
impairment charges totaling $155 million were recorded at Southern Power related
to the sale of its Florida plants and on its wind turbine equipment held for
development projects, as well as a $42 million goodwill impairment charge
recorded at Southern Company Gas related to the sale of Pivotal Home Solutions.
See Note 15 to the financial statements under "Southern Power" and "Southern
Company Gas" in Item 8 of the Form 10-K and Notes (C) and (K) to the Condensed
Financial Statements under "Other Matters - Southern Company Gas" and "Southern
Company," respectively, herein for additional information.
(Gain) Loss on Dispositions, Net
 Third Quarter 2019 vs. Third Quarter 2018      Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
       $(347)                 (98.3)                 $2,195                   N/M


N/M - Not meaningful
In the third quarter 2019, gain on dispositions, net was $6 million compared to
$353 million in the corresponding period in 2018. For year-to-date 2019, gain on
dispositions, net was $2.5 billion compared to $317 million in the corresponding
period in 2018. For year-to-date 2019, a preliminary gain of $2.5 billion ($1.3
billion after tax) was recorded related to the sale of Gulf Power. In the third
quarter and year-to-date 2018, net gains on dispositions of $353 million ($40
million gain after tax) and $317 million ($35 million loss after tax),
respectively, were recorded related to the Southern Company Gas Dispositions.
See Note (K) to the Condensed Financial Statements under "Southern Company"
herein for additional information.
Interest Expense, Net of Amounts Capitalized
 Third Quarter 2019 vs. Third Quarter 2018      Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
       $(24)                   (5.2)                 $(92)                   (6.6)


In the third quarter 2019, interest expense, net of amounts capitalized was $434
million compared to $458 million in the corresponding period in 2018. For
year-to-date 2019, interest expense, net of amounts capitalized was $1.3 billion
compared to $1.4 billion in the corresponding period in 2018. Excluding
decreases of $13 million and $39 million in the third quarter and year-to-date
2019, respectively, related to the sale of Gulf Power, the decreases were
primarily due to a decrease in average outstanding long-term debt, primarily at
the parent company.
See FINANCIAL CONDITION AND LIQUIDITY - "Financing Activities" herein, Note 8 to
the financial statements in Item 8 of the Form 10-K, and Note (F) to the
Condensed Financial Statements herein for additional information.

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Other Income (Expense), Net

 Third Quarter 2019 vs. Third Quarter 2018      Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
         $4                     7.0                   $44                    22.6


For year-to-date 2019, other income (expense), net was $239 million compared to
$195 million for the corresponding period in 2018. This increase was primarily
due to a $36 million gain arising from the settlement of litigation related to
the Roserock solar facility at Southern Power in the second quarter 2019, $23
million of increased non-service cost-related pension income, and $10 million of
increased interest income from temporary cash investments at the parent company.
These increases were partially offset by $24 million related to the settlement
of Mississippi Power's Deepwater Horizon claim in May 2018 and a $14 million
gain from a joint-development wind project at Southern Power in 2018, which was
attributable to its partner in the project and fully offset within
noncontrolling interests. See Note (C) to the Condensed Financial Statements
under "General Litigation Matters - Southern Power" herein, Note (H) to the
Condensed Financial Statements herein, and Note 3 to the financial statements
under "Other Matters - Mississippi Power," in Item 8 of the Form 10-K for
additional information.
Income Taxes
 Third Quarter 2019 vs. Third Quarter 2018      Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
       $(256)                 (41.1)                 $1,274                   N/M


N/M - Not meaningful
In the third quarter 2019, income taxes were $367 million compared to $623
million for the corresponding period in 2018. Excluding a $312 million decrease
related to the Southern Company Gas Dispositions, income taxes increased $56
million primarily due to higher pre-tax earnings.
For year-to-date 2019, income taxes were $1.9 billion compared to $598 million
for the corresponding period in 2018. Excluding a $363 million decrease related
to the Southern Company Gas Dispositions, income taxes increased $1.6 billion
primarily due to the tax impacts related to the sale of Gulf Power and other
increases in pre-tax earnings, including the $1.1 billion charge in the second
quarter 2018 associated with Plant Vogtle Units 3 and 4 construction, as well as
a $105 million reduction in tax benefits associated with wind PTCs following
Southern Power's 2018 sale of a noncontrolling tax equity interest in its wind
projects.
See Notes (G) and (K) to the Condensed Financial Statements herein for
additional information.
Net Income Attributable to Noncontrolling Interests
 Third Quarter 2019 vs. Third Quarter 2018      Year-to-Date 2019 vs. Year-to-Date 2018
(change in millions)        (% change)        (change in millions)        (% change)
       $(29)                  (53.7)                 $(45)                  (63.4)


In the third quarter 2019, net income attributable to noncontrolling interests
was $25 million compared to $54 million for the corresponding period in 2018.
The decrease was primarily due to an allocation of approximately $22 million of
losses attributable to noncontrolling interests related to the tax equity
partnerships entered into in 2018.
For year-to-date 2019, net income attributable to noncontrolling interests was
$26 million compared to $71 million for the corresponding period in 2018. The
decrease was primarily due to $70 million of losses attributable to
noncontrolling interests related to the tax equity partnerships entered into in
2018, partially offset by an allocation of approximately $29 million of income
to the noncontrolling interest partner related to the Roserock solar facility
litigation settlement.

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Substantially all noncontrolling interests relate to renewable projects at
Southern Power. See Notes 1 and 7 to the financial statements in Item 8 of the
Form 10-K under "General" and "Southern Power," respectively, and Note (E) to
the Condensed Financial Statements under "Southern Power - Consolidated Variable
Interest Entities" herein for additional information regarding the tax equity
partnerships. See Note (C) to the Condensed Financial Statements under "General
Litigation Matters - Southern Power" herein for additional information regarding
the Roserock solar facility litigation settlement.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of
Southern Company's future earnings potential. Future earnings will be impacted
by the recently completed and additional pending disposition activities
described herein, in Note (K) to the Condensed Financial Statements herein, and
in Note 15 to the financial statements in Item 8 of the Form 10-K. The level of
Southern Company's future earnings depends on numerous factors that affect the
opportunities, challenges, and risks of the Southern Company system's primary
businesses of selling electricity and distributing natural gas. These factors
include the traditional electric operating companies' and the natural gas
distribution utilities' ability to maintain constructive regulatory environments
that allow for the timely recovery of prudently-incurred costs during a time of
increasing costs, continued customer growth, and, for the traditional electric
operating companies, the weak pace of growth in electricity use per customer,
especially in residential and commercial markets. Plant Vogtle Units 3 and 4
construction and rate recovery and the profitability of Southern Power's
competitive wholesale business are also major factors.
Earnings in the electricity business will also depend upon maintaining and
growing sales, considering, among other things, the adoption and/or penetration
rates of increasingly energy-efficient technologies, increasing volumes of
electronic commerce transactions, and more multi-family home construction, all
of which could contribute to a net reduction in customer usage. Earnings for
both the electricity and natural gas businesses are subject to a variety of
other factors. These factors include weather, competition, new energy contracts
with other utilities and other wholesale customers, energy conservation
practiced by customers, the use of alternative energy sources by customers, the
prices of electricity and natural gas, the price elasticity of demand, and the
rate of economic growth or decline in the service territory. In addition, the
level of future earnings for the wholesale electric business also depends on
numerous factors including regulatory matters, creditworthiness of customers,
total electric generating capacity available and related costs, the development
or acquisition of renewable facilities and other energy projects, and the
successful remarketing of capacity as current contracts expire. Demand for
electricity and natural gas is primarily driven by the pace of economic growth
that may be affected by changes in regional and global economic conditions,
which may impact future earnings. In addition, the volatility of natural gas
prices has a significant impact on the natural gas distribution utilities'
customer rates, long-term competitive position against other energy sources, and
the ability of Southern Company Gas' gas marketing services and wholesale gas
services businesses to capture value from locational and seasonal spreads.
Additionally, changes in commodity prices subject a significant portion of
Southern Company Gas' operations to earnings variability.
As part of its ongoing effort to adapt to changing market conditions, Southern
Company continues to evaluate and consider a wide array of potential business
strategies. These strategies may include business combinations, partnerships,
and acquisitions involving other utility or non-utility businesses or
properties, disposition of certain assets or businesses, internal restructuring,
or some combination thereof. Furthermore, Southern Company may engage in new
business ventures that arise from competitive and regulatory changes in the
utility industry. Pursuit of any of the above strategies, or any combination
thereof, may significantly affect the business operations, risks, and financial
condition of Southern Company.
On June 13, 2019, Southern Power completed the sale of its equity interests in
Nacogdoches Power, LLC, the owner of an approximately 115-MW biomass facility
located in Nacogdoches County, Texas, to Austin Energy, for a cash purchase
price of approximately $461 million.
In November 2018, Southern Power entered into an agreement with Northern States
Power (a subsidiary of Xcel) to sell all of its equity interests in Plant
Mankato for an aggregate purchase price of approximately $650 million, subject
to certain state commission approvals. On September 27, 2019, the Minnesota
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denied approval of the transaction. A newly-formed subsidiary of Xcel has agreed
to purchase all of the equity interests in Plant Mankato subject to FERC
approval and other customary conditions to closing. The transaction is expected
to close by January 20, 2020. If the transaction does not close by this date,
either party may terminate the transaction, which would result in the payment of
a termination fee to Southern Power of up to $25 million. The ultimate outcome
of this matter cannot be determined at this time.
See "Regulatory Matters - Alabama Power" herein for information regarding
Alabama Power's proposed acquisition of an existing combined cycle facility.
For additional information relating to these issues, see RISK FACTORS and
MANAGEMENT'S DISCUSSION AND ANALYSIS - FUTURE EARNINGS POTENTIAL of Southern
Company in Item 7 of the Form 10-K.
Environmental Matters
The Southern Company system's operations are regulated by state and federal
environmental agencies through a variety of laws and regulations governing air,
water, land, and protection of other natural resources. The Southern Company
system maintains comprehensive environmental compliance and GHG strategies to
assess upcoming requirements and compliance costs associated with these
environmental laws and regulations and to achieve stated goals. Related costs
may result from the installation of additional environmental controls, closure
and monitoring of CCR facilities, unit retirements, or changing fuel sources for
certain existing units, as well as related upgrades to the Southern Company
system's transmission and distribution (electric and natural gas) systems, and
may impact future electric generating unit retirement and replacement decisions,
results of operations, cash flows, and/or financial condition. A major portion
of these costs is expected to be recovered through retail and wholesale rates.
The ultimate impact of environmental laws and regulations and GHG goals will
depend on various factors, such as state adoption and implementation of
requirements, the availability and cost of any deployed technology, fuel prices,
and the outcome of pending and/or future legal challenges.
New or revised environmental laws and regulations could affect many areas of the
traditional electric operating companies', Southern Power's, and the natural gas
distribution utilities' operations. The impact of any such changes cannot be
determined at this time. Environmental compliance costs could affect earnings if
such costs cannot continue to be recovered in rates on a timely basis for the
traditional electric operating companies and the natural gas distribution
utilities or through long-term wholesale agreements for the traditional electric
operating companies and Southern Power. Further, increased costs that are
recovered through regulated rates could contribute to reduced demand for
electricity and natural gas, which could negatively affect results of
operations, cash flows, and/or financial condition. Additionally, many
commercial and industrial customers may also be affected by existing and future
environmental requirements, which for some may have the potential to ultimately
affect their demand for electricity and natural gas. See MANAGEMENT'S DISCUSSION
AND ANALYSIS - FUTURE EARNINGS POTENTIAL - "Environmental Matters" of Southern
Company in Item 7 and Note 3 to the financial statements under "Environmental
Matters" in Item 8 of the Form 10-K for additional information.
Environmental Laws and Regulations
Air Quality
On September 13, 2019, the D.C. Circuit Court of Appeals dismissed most
challenges brought against the 2016 Cross-State Air Pollution Rule update (2016
CSAPR Update), including the application of the EPA's new emissions allowance
budget methodology to the State of Mississippi, which had been challenged by
Mississippi Power. However, the court agreed that the 2016 CSAPR Update was
unlawful because it allows upwind states to continue their significant
contributions to downwind air quality problems beyond statutory deadlines.
Accordingly, the court remanded the 2016 CSAPR Update to the EPA. The 2016 CSAPR
Update allowance budgets remain in place while the EPA considers how to address
the court's remand. The ultimate outcome of this matter cannot be determined at
this time.

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Water Quality
On October 22, 2019, the EPA and the U.S. Army Corps of Engineers jointly
published a final rule that repealed the 2015 Waters of the United States
(WOTUS) rule. This final rule will be effective December 23, 2019 and will bring
all states back under the pre-2015 regulations until a new WOTUS rule is
finalized. A revised definition of WOTUS is anticipated to be finalized by the
end of 2019. The impact of the WOTUS rule will depend on the content of the
final rule redefining WOTUS and the outcome of any associated legal challenges
and cannot be determined at this time.
Coal Combustion Residuals
During 2019, Alabama Power recorded increases totaling approximately $312
million to its AROs primarily related to the CCR Rule and the related state rule
based on management's completion of closure designs for all but one of its ash
pond facilities, including one facility jointly owned with Mississippi Power.
The additional estimated costs to close these ash ponds under the planned
closure-in-place methodology primarily relate to cost inputs from contractor
bids, internal drainage and dewatering system designs, and increases in the
estimated ash volumes. The cost estimate for the remaining ash pond facility
will be updated within the next 12 months and the change could be material.
As further analysis is performed and additional details are developed with
respect to ash pond closures, the traditional electric operating companies
expect to periodically update their ARO cost estimates. Additionally, the
closure designs and plans in the States of Alabama and Georgia are subject to
approval by environmental regulatory agencies. Absent continued recovery of ARO
costs through regulated rates, Southern Company's results of operations, cash
flows, and financial condition could be materially impacted. The ultimate
outcome of these matters cannot be determined at this time. See Note 6 to the
financial statements in Item 8 of the Form 10-K and Note (A) to the Condensed
Financial Statements under "Asset Retirement Obligations" herein for additional
information.
Global Climate Issues
On July 8, 2019, the EPA published the final Affordable Clean Energy rule (ACE
Rule) to repeal and replace the CPP. On September 17, 2019, the D.C. Circuit
Court of Appeals dismissed litigation related to the CPP as moot. The ACE Rule
requires states to develop unit-specific CO2 emission rate standards for
existing coal-fired units based on heat-rate efficiency improvements. Combustion
turbines, including natural gas combined cycles, are not included as affected
sources in the ACE Rule. The Southern Company system has ownership interests in
19 coal-fired units (approximately 10,300 MWs) to which the ACE Rule is
applicable. The ACE Rule is being challenged in the D.C. Circuit Court of
Appeals and Georgia Power has filed a motion to intervene in the litigation in
support of the rule, as have others. The ultimate impact of the ACE Rule,
including the repeal and replacement of the CPP, to the Southern Company system
will depend on state implementation plan requirements and the outcome of
associated legal challenges and cannot be determined at this time.
Regulatory Matters
See Note 2 to the financial statements in Item 8 of the Form 10-K and Note (B)
to the Condensed Financial Statements herein for additional information.
Fuel Cost Recovery
The traditional electric operating companies each have established fuel cost
recovery rates approved by their respective state PSCs. Fuel cost recovery
revenues are adjusted for differences in actual recoverable fuel costs and
amounts billed in current regulated rates. Accordingly, changes in the billing
factor will not have a significant effect on Southern Company's revenues or net
income, but will affect cash flow. The traditional electric operating companies
continuously monitor their under or over recovered fuel cost balances and make
appropriate filings with their state PSCs to adjust fuel cost recovery rates as
necessary.

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Alabama PowerAlabama Power's revenues from regulated retail operations are collected through
various rate mechanisms subject to the oversight of the Alabama PSC. Alabama
Power currently recovers its costs from the regulated retail business primarily
through Rate RSE, Rate CNP, Rate ECR, and Rate NDR. In addition, the Alabama PSC
issues accounting orders to address current events impacting Alabama Power.
Petition for Certificate of Convenience and Necessity
On September 6, 2019, Alabama Power filed a petition for a CCN with the Alabama
PSC for authorization to procure additional generating capacity through the
turnkey construction of a new combined cycle facility, the acquisition of an
existing combined cycle facility, and long-term contracts for the purchase of
power from others, as more fully described below. In addition, Alabama Power
will pursue approximately 200 MWs of certain demand side management and
distributed energy resource programs. This filing was predicated on the results
of Alabama Power's 2019 IRP provided to the Alabama PSC, which identified an
approximately 2,400-MW resource need for Alabama Power, driven by the need for
additional winter reserve capacity.
The procurement of these resources is subject to the satisfaction or waiver of
certain conditions, including, among other customary conditions, approval by the
Alabama PSC. The completion of the Autauga Combined Cycle Acquisition (defined
below) is also subject to (i) the expiration or termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act and (ii) approval
by the FERC. All regulatory approvals are expected to be obtained by the end of
the third quarter 2020.
On May 8, 2019, Alabama Power entered into an Agreement for Engineering,
Procurement, and Construction with Mitsubishi Hitachi Power Systems Americas,
Inc. and Black & Veatch Construction, Inc. to construct an approximately 720-MW
combined cycle facility at Plant Barry (Plant Barry Unit 8), which is expected
to be placed in service by the end of 2023.
On September 6, 2019, Alabama Power entered into a purchase and sale agreement
to acquire all of the equity interests in Tenaska Alabama II Partners, L.P.
(Autauga Combined Cycle Acquisition). Tenaska Alabama II Partners, L.P. owns and
operates an approximately 885-MW combined cycle generation facility in Autauga
County, Alabama. The transaction is expected to close by September 1, 2020. As
part of the Autauga Combined Cycle Acquisition, Alabama Power will assume an
existing power sales agreement under which the full output of the generating
facility remains committed to another third party for its remaining term of
approximately three years. The estimated revenues from the power sales agreement
are expected to offset the associated costs of operation during the remaining
term.
The capital investment associated with the construction of Plant Barry Unit 8
and the Autauga Combined Cycle Acquisition is currently estimated to total
approximately $1.1 billion.
Alabama Power also intends to procure through long-term PPAs approximately 640
MWs of additional generating capacity, which will consist of approximately 240
MWs of combined cycle generation expected to begin in 2020 and approximately 400
MWs of solar generation coupled with battery energy storage systems
(solar/battery systems) expected to begin in 2022 through 2024. The terms of the
agreements for the solar/battery systems permit Alabama Power to use the energy
and retire the associated renewable energy credits (REC) in service of customers
or to sell RECs, separately or bundled with energy.
Upon certification, Alabama Power expects to recover costs associated with Plant
Barry Unit 8 through its Rate CNP New Plant. Additionally, Alabama Power expects
to recover costs associated with the Autauga Combined Cycle Acquisition through
Rate RSE during the term of the existing power sales agreement and, on
expiration of the agreement, through Rate CNP New Plant. The recovery of costs
associated with laws, regulations, and other such mandates directed at the
utility industry are expected to be recovered through Rate CNP Compliance.
Alabama Power expects to recover the capacity-related costs associated with the
PPAs through its Rate CNP PPA. In addition, fuel and energy-related costs are
expected to be recovered through Rate ECR. Any remaining costs associated with
the Autauga Combined Cycle Acquisition and Plant Barry Unit 8 will be
incorporated through the annual filing of

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Rate RSE. See Note 2 to the financial statements under "Alabama Power" in Item 8
of the Form 10-K for additional information.
The ultimate outcome of these matters cannot be determined at this time.
Construction Work in Progress Accounting Order
On October 1, 2019, the Alabama PSC acknowledged that Alabama Power would begin
certain limited preparatory activities associated with Plant Barry Unit 8
construction to meet the target in-service date by authorizing Alabama Power to
record the related costs as CWIP prior to the issuance of an order on the CCN
petition. Should a CCN not be granted and Alabama Power does not proceed with
the related construction of Plant Barry Unit 8, Alabama Power may transfer those
costs and any costs that directly result from the non-issuance of the CCN to a
regulatory asset which would be amortized over a five-year period. If the
balance of incurred costs reaches 5% of the estimated in-service cost of the
total project prior to issuance of an order on the CCN petition, Alabama Power
will confer with the Alabama PSC regarding the appropriateness of additional
authorization.
Environmental Accounting Order
On April 15, 2019, Alabama Power retired Plant Gorgas Units 8, 9, and 10 and
reclassified approximately $654 million of the unrecovered asset balances to
regulatory assets, which are being recovered over the units' remaining useful
lives, the latest being through 2037, as established prior to the decision to
retire. Additionally, approximately $700 million of net capitalized asset
retirement costs were reclassified to a regulatory asset in accordance with
accounting guidance provided by the Alabama PSC. The asset retirement costs are
being recovered through 2055. See Note 2 to the financial statements under
"Alabama Power - Environmental Accounting Order" and Note 6 in Item 8 of the
Form 10-K for additional information.
Georgia PowerGeorgia Power's revenues from regulated retail operations are collected through
various rate mechanisms subject to the oversight of the Georgia PSC. Georgia
Power currently recovers its costs from the regulated retail business through
the 2013 ARP, which includes traditional base tariff rates, Demand-Side
Management tariffs, Environmental Compliance Cost Recovery (ECCR) tariffs, and
Municipal Franchise Fee tariffs. In addition, financing costs related to
certified construction costs of Plant Vogtle Units 3 and 4 are being collected
through the NCCR tariff and fuel costs are collected through a separate fuel
cost recovery tariff.
Rate Plans
On June 28, 2019, Georgia Power filed a base rate case (Georgia Power 2019 Base
Rate Case) with the Georgia PSC. The filing, as modified on September 24, 2019,
includes a three-year Alternate Rate Plan with requested rate increases totaling
$560 million, $144 million, and $233 million effective January 1, 2020, January
1, 2021, and January 1, 2022, respectively. These increases are based on a
proposed retail ROE of 10.90% and a proposed equity ratio of 56% and reflect
levelized revenue requirements during the three-year period, with the exception
of incremental compliance costs related to CCR AROs, Demand-Side Management
programs, and adjustments to the Municipal Franchise Fee tariff.

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Georgia Power has requested recovery of the proposed increases through its
existing base rate tariffs as follows:
Tariff                   2020    2021   2022
                            (in millions)
Traditional base:
Levelized               $  210  $   -  $   -
CCR AROs                   158    139    227
ECCR                       163      -      -
Demand-Side Management      12      1      1
Municipal Franchise Fee     17      3      5
Total(*)                $  560$ 144$ 233

(*) Totals may not add due to rounding.



Georgia Power's filing primarily reflects requests to (i) address the impacts of
the Tax Reform Legislation, (ii) recover the costs of recent and future capital
investments in infrastructure designed to maintain high levels of reliability
and superior customer service with updated depreciation rates, (iii) recover
substantial storm damage expenses incurred and deferred since 2013 along with a
reasonable level of storm damage expenses expected to be incurred during the
three years ending December 31, 2022, and (iv) recover the costs necessary to
comply with federal and state regulations for CCR AROs. In addition, the filing
includes the following provisions:
• Continuation of an allowed retail ROE range of 10.00% to 12.00%.


• Continuation of the process whereby two-thirds of any earnings above the

top of the allowed ROE range are shared with Georgia Power's customers and

the remaining one-third are retained by Georgia Power.

• Continuation of the option to file an Interim Cost Recovery tariff in the

event earnings are projected to fall below the bottom of the ROE range

during the three-year term of the plan.



Georgia Power expects the Georgia PSC to issue a final order in this matter on
December 17, 2019. The ultimate outcome of this matter cannot be determined at
this time.
Integrated Resource Plan
In 2016, the Georgia PSC approved Georgia Power's triennial IRP, including
recovery of costs up to $99 million through June 30, 2019 to preserve nuclear
generation as an option at a future generation site in Stewart County, Georgia.
In 2017, the Georgia PSC approved Georgia Power's decision to suspend work at
the site due to changing economics, including lower load forecasts and fuel
costs. In accordance with the Georgia PSC's order, costs incurred of
approximately $50 million have been recorded as a regulatory asset.
On July 16, 2019, the Georgia PSC voted to approve Georgia Power's triennial IRP
(Georgia Power 2019 IRP) as modified by a stipulated agreement among Georgia
Power, the staff of the Georgia PSC, and certain intervenors and further
modified by the Georgia PSC.
In the Georgia Power 2019 IRP, the Georgia PSC approved the decertification and
retirement of Plant Hammond Units 1 through 4 (840 MWs) and Plant McIntosh Unit
1 (142.5 MWs) effective July 29, 2019. The Georgia PSC also approved the
reclassification of the remaining net book values of the Plant Hammond and Plant
McIntosh units (approximately $500 million and $40 million, respectively), as
well as any unusable materials and supplies inventory balances, upon retirement
to a regulatory asset. Recovery of each unit's net book value will continue
through December 31, 2019 as provided in the 2013 ARP. Additionally,
approximately $295 million of net capitalized asset retirement costs were
reclassified to a regulatory asset.
For the regulatory asset balances remaining at December 31, 2019, Georgia Power
requested recovery in the Georgia Power 2019 Base Rate Case as follows: (i) the
net book values of Plant Mitchell Unit 3 (approximately $8 million at
September 30, 2019) and Plant McIntosh Unit 1, any unusable materials and
supplies inventory, and the future generation site in Stewart County, Georgia
over a three-year period ending December 31, 2022 and (ii) the

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net book values of Plant Hammond Units 1 through 4 over a period equal to the
applicable unit's remaining useful life through 2035. The timing of recovery of
the related ARO costs will be determined in the Georgia Power 2019 Base Rate
Case. The ultimate outcome of these matters cannot be determined at this time.
Also in the Georgia Power 2019 IRP, the Georgia PSC approved Georgia Power's
proposed environmental compliance strategy associated with ash pond and certain
landfill closures and post-closure care in compliance with the CCR Rule and the
related state rule. In the Georgia Power 2019 Base Rate Case, Georgia Power
requested recovery of the under recovered balance of these compliance costs at
December 31, 2019 (approximately $157 million at September 30, 2019) over a
three-year period ending December 31, 2022 and recovery of estimated compliance
costs of $277 million for 2020, $395 million for 2021, and $655 million for 2022
over three-year periods ending December 31, 2022, 2023, and 2024, respectively.
The ultimate outcome of this matter cannot be determined at this time. See Note
6 to the financial statements in Item 8 of the Form 10-K for additional
information regarding Georgia Power's AROs.
Additionally, the Georgia PSC rejected a request to certify approximately 25 MWs
of capacity at Plant Scherer Unit 3 for the retail jurisdiction beginning
January 1, 2020 following the expiration of a wholesale PPA. Georgia Power may
offer such capacity in the wholesale market or to the retail jurisdiction in a
future IRP. The ultimate outcome of this matter cannot be determined at this
time but is not expected to have a material impact on Southern Company's
financial statements.
The Georgia PSC also approved Georgia Power to (i) issue requests for proposals
(RFP) for capacity beginning in 2022 or 2023 and in 2026, 2027, or 2028; (ii)
procure up to an additional 2,210 MWs of renewable resources through competitive
RFPs; and (iii) invest in a portfolio of up to 80 MWs of battery energy storage
technologies.
See "Rate Plans" herein for additional information regarding the Georgia Power
2019 Base Rate Case.
Mississippi Power
Kemper County Energy Facility
As the mining permit holder, Liberty Fuels Company, LLC has a legal obligation
to perform mine reclamation, and Mississippi Power has a contractual obligation
to fund all reclamation activities. As a result of the abandonment of the Kemper
IGCC, final mine reclamation began in 2018 and is expected to be substantially
completed in 2020, with monitoring expected to continue through 2027. See Note 6
to the financial statements in Item 8 of the Form 10-K for additional
information.
During the third quarter and year-to-date 2019, Mississippi Power recorded
pre-tax charges to income of $4 million ($3 million after tax) and $10 million
($7 million after tax), respectively, primarily resulting from the abandonment
and related closure activities and ongoing period costs, net of sales proceeds,
for the mine and gasifier-related assets at the Kemper County energy facility.
Additional closure costs for the mine and gasifier-related assets, currently
estimated at up to $10 million pre-tax (excluding dismantlement costs, net of
salvage), may be incurred through the first half of 2020. In addition, period
costs, including, but not limited to, costs for compliance and safety, ARO
accretion, and property taxes for the mine and gasifier-related assets, are
estimated at $3 million for the remainder of 2019 and $2 million to $7 million
annually in 2020 through 2023.
In addition, Mississippi Power constructed the CO2 pipeline for the planned
transport of captured CO2 for use in enhanced oil recovery and is currently
evaluating its options regarding the final disposition of the CO2 pipeline,
including removal of the pipeline. This evaluation is expected to be complete by
year-end 2019. If Mississippi Power ultimately decides to remove the CO2
pipeline, the cost of removal could have a material impact on Southern Company's
financial statements.
In December 2018, Mississippi Power filed with the DOE its request for property
closeout certification under the contract related to the $387 million of grants
received. Mississippi Power and the DOE are currently in discussions regarding
the requested closeout and property disposition, which may require payment to
the DOE for a portion of certain property that is to be retained by Mississippi
Power. In connection with the DOE closeout discussions, on April 29, 2019, the
Civil Division of the Department of Justice informed Southern Company and
Mississippi Power

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of an investigation related to the Kemper County energy facility. The ultimate
outcome of these matters cannot be determined at this time; however, they could
have a material impact on Southern Company's financial statements.
Southern Company Gas
The natural gas distribution utilities are subject to regulation and oversight
by their respective state regulatory agencies for the rates charged to their
customers and other matters. With the exception of Atlanta Gas Light, which does
not sell natural gas to end-use customers, the natural gas distribution
utilities are authorized by the relevant regulatory agencies in the states in
which they serve to use natural gas cost recovery mechanisms that adjust rates
to reflect changes in the wholesale cost of natural gas and ensure recovery of
all costs prudently incurred in purchasing natural gas for customers. Natural
gas cost recovery revenues are adjusted for differences in actual recoverable
natural gas costs and amounts billed in current regulated rates. Changes in the
billing factor will have no effect on revenues or net income, but will affect
cash flows. In addition to natural gas cost recovery mechanisms, there are other
cost recovery mechanisms, such as regulatory riders, which vary by utility but
allow recovery of certain costs, such as those related to infrastructure
replacement programs, as well as environmental remediation and energy efficiency
plans.
In November 2018, Nicor Gas filed a general base rate case with the Illinois
Commission requesting a $230 million increase in annual base rate revenues. The
requested increase was based on a projected test year for the 12-month period
ending September 30, 2020, a ROE of 10.6%, and an increase in the equity ratio
from 52% to 54% to address the negative cash flow and credit metric impacts of
the Tax Reform Legislation.
On April 16, 2019, Nicor Gas entered into a stipulation agreement to resolve all
related issues with the Staff of the Illinois Commission, including a ROE of
9.86% and an equity ratio of 54%. Also on April 16, 2019, Nicor Gas filed its
rebuttal testimony with the Illinois Commission incorporating the stipulation
agreement and addressing the remaining items outstanding with the other two
intervenors. As a result of the stipulation agreement and rebuttal testimony,
the revised requested annual revenue increase was $180 million.
On October 2, 2019, the Illinois Commission approved a $168 million annual base
rate increase for Nicor Gas, including $65 million related to the recovery of
investments under the Investing in Illinois program, based on a ROE of 9.73% and
an equity ratio of 54.2%, which became effective October 8, 2019. Additionally,
the Illinois Commission approved a volume balancing adjustment, a revenue
decoupling mechanism for residential customers that provides a monthly benchmark
level of revenue per rate class for recovery. The Illinois Commission's order is
subject to any rehearing request filed by any party to the proceeding within 30
days of service of the order on such party.
On June 3, 2019, Atlanta Gas Light filed a general base rate case with the
Georgia PSC requesting a $96 million increase in annual base rate revenues,
which was subsequently revised to $93 million. The requested increase is based
on a forward-looking test year for the 12-month period ending July 31, 2020, a
ROE of 10.75% with an earnings band based on a ROE between 10.55% and 10.95%,
and a continued equity ratio of 55%. The filing also requests the continuation
of the Georgia rate adjustment mechanism, as previously authorized. Atlanta Gas
Light expects the Georgia PSC to issue a final order on this matter on December
19, 2019 with the new rates becoming effective January 1, 2020. The ultimate
outcome of this matter cannot be determined at this time.
Construction Program
Overview
The subsidiary companies of Southern Company are engaged in continuous
construction programs to accommodate existing and estimated future loads on
their respective systems. The Southern Company system intends to continue its
strategy of developing and constructing new electric generating facilities,
adding environmental modifications to certain existing units, expanding and
improving the electric transmission and distribution systems, and updating and
expanding the natural gas distribution systems. For the traditional electric
operating companies, major generation construction projects are subject to state
PSC approval in order to be included in retail rates. While Southern Power
generally constructs and acquires generation assets covered by long-term PPAs,
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negatively affect future earnings. Southern Company Gas is engaged in various
infrastructure improvement programs designed to update or expand the natural gas
distribution systems of the natural gas distribution utilities to improve
reliability and meet operational flexibility and growth. The natural gas
distribution utilities recover their investment and a return associated with
these infrastructure programs through their regulated rates. See Notes 2 and 15
to the financial statements under "Southern Company Gas - Infrastructure
Replacement Programs and Capital Projects" and "Southern Power," respectively,
in Item 8 of the Form 10-K and Note (K) to the Condensed Financial Statements
under "Southern Power" herein for additional information.
The largest construction project currently underway in the Southern Company
system is Plant Vogtle Units 3 and 4 (45.7% ownership interest by Georgia Power
in the two units, each with approximately 1,100 MWs). See Note 2 to the
financial statements under "Georgia Power - Nuclear Construction" in Item 8 of
the Form 10-K and "Nuclear Construction" herein for additional information.
Also see FINANCIAL CONDITION AND LIQUIDITY - "Capital Requirements and
Contractual Obligations" herein for additional information regarding Southern
Company's capital requirements for its subsidiaries' construction programs.
Nuclear Construction
See Note 2 to the financial statements under "Georgia Power - Nuclear
Construction" in Item 8 of the Form 10-K for additional information regarding
the construction of Plant Vogtle Units 3 and 4, the joint ownership agreements
and related funding agreement, VCM reports, and the NCCR tariff.
In 2009, the Georgia PSC certified construction of Plant Vogtle Units 3 and 4.
Georgia Power holds a 45.7% ownership interest in Plant Vogtle Units 3 and 4. In
2012, the NRC issued the related combined construction and operating licenses,
which allowed full construction of the two AP1000 nuclear units (with electric
generating capacity of approximately 1,100 MWs each) and related facilities to
begin. Until March 2017, construction on Plant Vogtle Units 3 and 4 continued
under the Vogtle 3 and 4 Agreement, which was a substantially fixed price
agreement. In March 2017, the EPC Contractor filed for bankruptcy protection
under Chapter 11 of the U.S. Bankruptcy Code. In connection with the EPC
Contractor's bankruptcy filing, Georgia Power, acting for itself and as agent
for the other Vogtle Owners, entered into several transitional arrangements to
allow construction to continue. In July 2017, Georgia Power, acting for itself
and as agent for the other Vogtle Owners, entered into the Vogtle Services
Agreement, whereby Westinghouse provides facility design and engineering
services, procurement and technical support, and staff augmentation on a time
and materials cost basis. The Vogtle Services Agreement provides that it will
continue until the start-up and testing of Plant Vogtle Units 3 and 4 are
complete and electricity is generated and sold from both units. The Vogtle
Services Agreement is terminable by the Vogtle Owners upon 30 days' written
notice.
In October 2017, Georgia Power, acting for itself and as agent for the other
Vogtle Owners, executed the Bechtel Agreement, a cost reimbursable plus fee
arrangement, whereby Bechtel is reimbursed for actual costs plus a base fee and
an at-risk fee, which is subject to adjustment based on Bechtel's performance
against cost and schedule targets. Each Vogtle Owner is severally (not jointly)
liable for its proportionate share, based on its ownership interest, of all
amounts owed to Bechtel under the Bechtel Agreement. The Vogtle Owners may
terminate the Bechtel Agreement at any time for their convenience, provided that
the Vogtle Owners will be required to pay amounts related to work performed
prior to the termination (including the applicable portion of the base fee),
certain termination-related costs, and, at certain stages of the work, the
applicable portion of the at-risk fee. Bechtel may terminate the Bechtel
Agreement under certain circumstances, including certain Vogtle Owner
suspensions of work, certain breaches of the Bechtel Agreement by the Vogtle
Owners, Vogtle Owner insolvency, and certain other events.

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Cost and Schedule
Georgia Power's approximate proportionate share of the remaining estimated
capital cost to complete Plant Vogtle Units 3 and 4 by the expected in-service
dates of November 2021 and November 2022, respectively, is as follows:
                                            (in billions)

Base project capital cost forecast(a)(b) $ 8.0 Construction contingency estimate

                   0.4
Total project capital cost forecast(a)(b)           8.4

Net investment as of September 30, 2019(b) (5.5 ) Remaining estimate to complete(a) $ 2.9

(a) Excludes financing costs expected to be capitalized through AFUDC of

approximately $300 million.

(b) Net of $1.7 billion received from Toshiba under the Guarantee Settlement

Agreement and approximately $188 million in related Customer Refunds.



As of September 30, 2019, approximately $30 million of the construction
contingency estimate was allocated to the base capital cost forecast for cost
risks including, among other factors, attracting and retaining craft labor;
adding resources for supervision, field support, project management, initial
test program, and start-up; and procurement. As and when construction
contingency is spent, Georgia Power may request the Georgia PSC to evaluate
those expenditures for rate recovery.
Georgia Power estimates that its financing costs for construction of Plant
Vogtle Units 3 and 4 will total approximately $3.1 billion, of which $2.1
billion had been incurred through September 30, 2019.
In April 2019, Southern Nuclear completed a cost and schedule validation process
to verify and update quantities of commodities remaining to install, labor hours
to install remaining quantities and related productivity, testing and system
turnover requirements, and forecasted staffing needs and related costs. This
process confirmed the estimated total project capital cost forecast for Plant
Vogtle Units 3 and 4. The expected in-service dates of November 2021 for Unit 3
and November 2022 for Unit 4, as previously approved by the Georgia PSC, remain
unchanged. On April 30, 2019, as requested by the staff of the Georgia PSC,
Georgia Power reported the results of the cost and schedule validation process
to the Georgia PSC.
As construction continues and testing and system turnover activities increase,
challenges with management of contractors, subcontractors, and vendors;
supervision of craft labor and related craft labor productivity, particularly in
the installation of electrical and mechanical commodities, ability to attract
and retain craft labor, and/or related cost escalation; procurement,
fabrication, delivery, assembly, and/or installation and the initial testing and
start-up, including any required engineering changes, of plant systems,
structures, or components (some of which are based on new technology that only
recently began initial operation in the global nuclear industry at this scale),
or regional transmission upgrades, any of which may require additional labor
and/or materials; or other issues could arise and change the projected schedule
and estimated cost.
The April 2019 cost and schedule validation process established target values
for monthly construction production and system turnover activities as part of a
strategy to maintain and, where possible, build margin to the approved
in-service dates. To support that strategy, monthly production and activity
target values will continue to increase significantly throughout the remainder
of 2019 and into 2020. To meet these increasing monthly targets, existing craft
construction productivity must improve and additional craft laborers
(particularly electrical and pipefitter craft labor), as well as additional
supervision and other field support resources, must be retained and deployed.
There have been technical and procedural challenges to the construction and
licensing of Plant Vogtle Units 3 and 4 at the federal and state level and
additional challenges may arise. Processes are in place that are designed to
assure compliance with the requirements specified in the Westinghouse Design
Control Document and the combined construction and operating licenses, including
inspections by Southern Nuclear and the NRC that occur throughout construction.
As a result of such compliance processes, certain license amendment requests
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approved or are pending before the NRC. Various design and other licensing-based
compliance matters, including the timely submittal by Southern Nuclear of the
ITAAC documentation for each unit and the related reviews and approvals by the
NRC necessary to support NRC authorization to load fuel, may arise, which may
result in additional license amendments or require other resolution. If any
license amendment requests or other licensing-based compliance issues are not
resolved in a timely manner, there may be delays in the project schedule that
could result in increased costs.
The ultimate outcome of these matters cannot be determined at this time.
However, any extension of the regulatory-approved project schedule is currently
estimated to result in additional base capital costs of approximately $50
million per month, based on Georgia Power's ownership interests, and AFUDC of
approximately $11 million per month. While Georgia Power is not precluded from
seeking recovery of any future capital cost forecast increase, management will
ultimately determine whether or not to seek recovery. Any further changes to the
capital cost forecast that are not expected to be recoverable through regulated
rates will be required to be charged to income and such charges could be
material.
Joint Owner Contracts
In November 2017, the Vogtle Owners entered into an amendment to their joint
ownership agreements for Plant Vogtle Units 3 and 4 to provide for, among other
conditions, additional Vogtle Owner approval requirements. Effective in August
2018, the Vogtle Owners further amended the joint ownership agreements to
clarify and provide procedures for certain provisions of the joint ownership
agreements related to adverse events that require the vote of the holders of at
least 90% of the ownership interests in Plant Vogtle Units 3 and 4 to continue
construction (as amended, and together with the November 2017 amendment, the
Vogtle Joint Ownership Agreements). The Vogtle Joint Ownership Agreements also
confirm that the Vogtle Owners' sole recourse against Georgia Power or Southern
Nuclear for any action or inaction in connection with their performance as agent
for the Vogtle Owners is limited to removal of Georgia Power and/or Southern
Nuclear as agent, except in cases of willful misconduct.
As a result of the increase in the total project capital cost forecast and
Georgia Power's decision not to seek rate recovery of the increase in the base
capital costs in conjunction with the nineteenth VCM report, the holders of at
least 90% of the ownership interests in Plant Vogtle Units 3 and 4 were required
to vote to continue construction. In September 2018, the Vogtle Owners
unanimously voted to continue construction of Plant Vogtle Units 3 and 4.
Amendments to the Vogtle Joint Ownership Agreements
In connection with the vote to continue construction, Georgia Power entered into
(i) the Vogtle Owner Term Sheet with the other Vogtle Owners and MEAG's
wholly-owned subsidiaries MEAG SPVJ, MEAG Power SPVM, LLC (MEAG SPVM), and MEAG
Power SPVP, LLC (MEAG SPVP) to take certain actions which partially mitigate
potential financial exposure for the other Vogtle Owners, including additional
amendments to the Vogtle Joint Ownership Agreements and the purchase of PTCs
from the other Vogtle Owners at pre-established prices, and (ii) the MEAG Term
Sheet with MEAG and MEAG SPVJ to provide funding with respect to MEAG SPVJ's
ownership interest in Plant Vogtle Units 3 and 4 under certain circumstances. On
January 14, 2019, Georgia Power, MEAG, and MEAG SPVJ entered into an agreement
to implement the provisions of the MEAG Term Sheet. On February 18, 2019,
Georgia Power, the other Vogtle Owners, and MEAG's wholly-owned subsidiaries
MEAG SPVJ, MEAG SPVM, and MEAG SPVP entered into certain amendments to the
Vogtle Joint Ownership Agreements to implement the provisions of the Vogtle
Owner Term Sheet.
The ultimate outcome of these matters cannot be determined at this time.
Regulatory Matters
In 2009, the Georgia PSC voted to certify construction of Plant Vogtle Units 3
and 4 with a certified capital cost of $4.418 billion. In addition, in 2009 the
Georgia PSC approved inclusion of the Plant Vogtle Units 3 and 4 related CWIP
accounts in rate base, and the State of Georgia enacted the Georgia Nuclear
Energy Financing Act, which allows Georgia Power to recover financing costs for
Plant Vogtle Units 3 and 4. Financing costs are recovered on all applicable
certified costs through annual adjustments to the NCCR tariff up to the
certified capital cost of $4.418

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billion. At September 30, 2019, Georgia Power had recovered approximately $2.1
billion of financing costs. Financing costs related to capital costs above
$4.418 billion will be recovered through AFUDC; however, Georgia Power will not
record AFUDC related to any capital costs in excess of the total deemed
reasonable by the Georgia PSC (currently $7.3 billion) and not requested for
rate recovery. In December 2018, the Georgia PSC approved Georgia Power's
request to increase the NCCR tariff by $88 million annually, effective January
1, 2019. Georgia Power expects to file on November 1, 2019 to decrease the NCCR
tariff by approximately $65 million annually, effective January 1, 2020, pending
Georgia PSC approval.
Georgia Power is required to file semi-annual VCM reports with the Georgia PSC
by February 28 and August 31 of each year. In 2013, in connection with the
eighth VCM report, the Georgia PSC approved a stipulation between Georgia Power
and the staff of the Georgia PSC to waive the requirement to amend the Plant
Vogtle Units 3 and 4 certificate in accordance with the 2009 certification order
until the completion of Plant Vogtle Unit 3, or earlier if deemed appropriate by
the Georgia PSC and Georgia Power.
In 2016, the Georgia PSC voted to approve a settlement agreement (Vogtle Cost
Settlement Agreement) resolving certain prudency matters in connection with the
fifteenth VCM report. In December 2017, the Georgia PSC voted to approve (and
issued its related order on January 11, 2018) Georgia Power's seventeenth VCM
report and modified the Vogtle Cost Settlement Agreement. The Vogtle Cost
Settlement Agreement, as modified by the January 11, 2018 order, resolved the
following regulatory matters related to Plant Vogtle Units 3 and 4: (i) none of
the $3.3 billion of costs incurred through December 31, 2015 and reflected in
the fourteenth VCM report should be disallowed from rate base on the basis of
imprudence; (ii) the Contractor Settlement Agreement was reasonable and prudent
and none of the amounts paid pursuant to the Contractor Settlement Agreement
should be disallowed from rate base on the basis of imprudence; (iii) (a)
capital costs incurred up to $5.68 billion would be presumed to be reasonable
and prudent with the burden of proof on any party challenging such costs, (b)
Georgia Power would have the burden to show that any capital costs above $5.68
billion were prudent, and (c) a revised capital cost forecast of $7.3 billion
(after reflecting the impact of payments received under the Guarantee Settlement
Agreement and related Customer Refunds) was found reasonable; (iv) construction
of Plant Vogtle Units 3 and 4 should be completed, with Southern Nuclear serving
as project manager and Bechtel as primary contractor; (v) approved and deemed
reasonable Georgia Power's revised schedule placing Plant Vogtle Units 3 and 4
in service in November 2021 and November 2022, respectively; (vi) confirmed that
the revised cost forecast does not represent a cost cap and that prudence
decisions on cost recovery will be made at a later date, consistent with
applicable Georgia law; (vii) reduced the ROE used to calculate the NCCR tariff
(a) from 10.95% (the ROE rate setting point authorized by the Georgia PSC in the
2013 ARP) to 10.00% effective January 1, 2016, (b) from 10.00% to 8.30%,
effective January 1, 2020, and (c) from 8.30% to 5.30%, effective January 1,
2021 (provided that the ROE in no case will be less than Georgia Power's average
cost of long-term debt); (viii) reduced the ROE used for AFUDC equity for Plant
Vogtle Units 3 and 4 from 10.00% to Georgia Power's average cost of long-term
debt, effective January 1, 2018; and (ix) agreed that upon Unit 3 reaching
commercial operation, retail base rates would be adjusted to include carrying
costs on those capital costs deemed prudent in the Vogtle Cost Settlement
Agreement. The January 11, 2018 order also stated that if Plant Vogtle Units 3
and 4 are not commercially operational by June 1, 2021 and June 1, 2022,
respectively, the ROE used to calculate the NCCR tariff will be further reduced
by 10 basis points each month (but not lower than Georgia Power's average cost
of long-term debt) until the respective Unit is commercially operational. The
ROE reductions negatively impacted earnings by approximately $100 million in
2018 and are estimated to have negative earnings impacts of approximately $70
million in 2019 and an aggregate of approximately $650 million from 2020 to
2022.
In its January 11, 2018 order, the Georgia PSC also stated if other conditions
change and assumptions upon which Georgia Power's seventeenth VCM report are
based do not materialize, the Georgia PSC reserved the right to reconsider the
decision to continue construction.
In February 2018, Georgia Interfaith Power & Light, Inc. (GIPL) and Partnership
for Southern Equity, Inc. (PSE) filed a petition appealing the Georgia PSC's
January 11, 2018 order with the Fulton County Superior Court. In March 2018,
Georgia Watch filed a similar appeal to the Fulton County Superior Court for
judicial review of the Georgia PSC's decision and denial of Georgia Watch's
motion for reconsideration. In December 2018, the Fulton County Superior Court
granted Georgia Power's motion to dismiss the two appeals. On January 9, 2019,
GIPL, PSE,

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and Georgia Watch filed an appeal of this decision with the Georgia Court of
Appeals. On October 29, 2019, the Georgia Court of Appeals issued an opinion
affirming the Fulton County Superior Court's ruling that the Georgia PSC's
January 11, 2018 order was not a final, appealable decision. In addition, the
Georgia Court of Appeals remanded the case to the Fulton County Superior Court
to clarify its ruling as to whether the petitioners showed that review of the
Georgia PSC's final order would not provide them an adequate remedy. Georgia
Power believes the petitions have no merit; however, an adverse outcome in the
litigation combined with subsequent adverse action by the Georgia PSC could have
a material impact on Southern Company's results of operations, financial
condition, and liquidity.
The Georgia PSC has approved nineteen VCM reports covering the period through
June 30, 2018, including total construction capital costs incurred through that
date of $5.4 billion (before $1.7 billion of payments received under the
Guarantee Settlement Agreement and approximately $188 million in related
Customer Refunds). On August 30, 2019, Georgia Power filed its twentieth VCM
report concurrently with its twenty-first VCM report with the Georgia PSC, which
requested approval of $1.2 billion of construction capital costs incurred from
July 1, 2018 through June 30, 2019.
In the nineteenth VCM, the Georgia PSC deferred approval of $51.6 million of
expenditures related to Georgia Power's portion of an administrative claim filed
in the Westinghouse bankruptcy proceedings. On June 20, 2019, Georgia Power,
acting for itself and as agent for the other Vogtle Owners, entered into a
settlement agreement related to the administrative claim filed in the
Westinghouse bankruptcy proceedings. Accordingly, in the twentieth/twenty-first
VCM report, Georgia Power also requested approval of $21.5 million of associated
expenditures previously deferred for approval by the Georgia PSC. The remaining
$30.1 million deferred for approval was refunded to Georgia Power and credited
to the total construction capital costs.
The ultimate outcome of these matters cannot be determined at this time.
See RISK FACTORS of Southern Company in the Form 10-K for a discussion of
certain risks associated with the licensing, construction, and operation of
nuclear generating units, including potential impacts that could result from a
major incident at a nuclear facility anywhere in the world.
DOE Financing
At September 30, 2019, Georgia Power had borrowed $3.46 billion related to Plant
Vogtle Units 3 and 4 costs as provided through the Amended and Restated Loan
Guarantee Agreement and related multi-advance credit facilities among Georgia
Power, the DOE, and the FFB, which provide for borrowings of up to approximately
$5.130 billion, subject to the satisfaction of certain conditions. See Note 8 to
the financial statements under "Long-term Debt - DOE Loan Guarantee Borrowings"
in Item 8 of the Form 10-K and Note (F) to the Condensed Financial Statements
under "DOE Loan Guarantee Borrowings" herein for additional information,
including applicable covenants, events of default, mandatory prepayment events,
and conditions to borrowing.
The ultimate outcome of these matters cannot be determined at this time.
Gas Pipeline Projects
See MANAGEMENT'S DISCUSSION AND ANALYSIS - FUTURE EARNINGS POTENTIAL - "FERC
Matters - Southern Company Gas" of Southern Company in Item 7 of the Form 10-K
for additional information.
In 2014, Southern Company Gas entered into a joint venture, whereby it holds a
5% ownership interest in the Atlantic Coast Pipeline, an interstate pipeline
company which will develop and operate a 605-mile natural gas pipeline in North
Carolina, Virginia, and West Virginia with expected initial transportation
capacity of 1.5 Bcf per day.
The Atlantic Coast Pipeline has experienced challenges to its permits since
construction began in 2018. On October 4, 2019, the U.S. Supreme Court agreed to
hear Atlantic Coast Pipeline's appeal of a lower court ruling that overturned a
key permit for the project. The delays resulting from the permitting issues have
impacted the cost and schedule for the project. As a result, total current
project cost estimates have increased from between $7.0 billion

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and $7.8 billion ($350 million and $390 million for Southern Company Gas) to
between $7.3 billion and $7.8 billion ($365 million and $390 million for
Southern Company Gas), excluding financing costs. The operator of the joint
venture has indicated that it currently expects to complete construction by the
end of 2021 and place the project in service shortly thereafter.
Also in 2014, Southern Company Gas entered into a partnership in which it holds
a 20% ownership interest in the PennEast Pipeline, an interstate pipeline
company formed to develop and operate a 118-mile natural gas pipeline between
New Jersey and Pennsylvania. The expected initial transportation capacity of 1.0
Bcf per day is under long-term contracts, mainly with public utilities and other
market-serving entities, such as electric generation companies, in New Jersey,
Pennsylvania, and New York.
On September 10, 2019, an appellate court ruled that the PennEast Pipeline does
not have federal court eminent domain authority over lands in which a state has
property rights interests. The joint venture is pursuing appellate and other
options and is evaluating further next steps.
The ultimate outcome of these matters cannot be determined at this time;
however, any work delays, whether caused by judicial or regulatory action,
abnormal weather, or other conditions, may result in additional cost or schedule
modifications or, ultimately, in project cancellation, which could result in an
impairment of one or both of Southern Company Gas' investments and could have a
material impact on Southern Company's financial statements.
Other Matters
See MANAGEMENT'S DISCUSSION AND ANALYSIS - FUTURE EARNINGS POTENTIAL - "Other
Matters" of Southern Company in Item 7 for additional information.
Southern Company and its subsidiaries are involved in various other matters that
could affect future earnings, including matters being litigated, as well as
other regulatory matters and matters that could result in asset impairments. In
addition, Southern Company and its subsidiaries are subject to certain claims
and legal actions arising in the ordinary course of business. The business
activities of Southern Company's subsidiaries are subject to extensive
governmental regulation related to public health and the environment, such as
laws and regulations governing air, water, land, and protection of other natural
resources. Litigation over environmental issues and claims of various types,
including property damage, personal injury, common law nuisance, and citizen
enforcement of environmental laws and regulations, has occurred throughout the
U.S. This litigation has included claims for damages alleged to have been caused
by CO2 and other emissions, CCR, and alleged exposure to hazardous materials,
and/or requests for injunctive relief in connection with such matters.
The ultimate outcome of such pending or potential litigation, regulatory
matters, or potential asset impairments cannot be determined at this time;
however, for current proceedings not specifically reported in Notes (B) and (C)
to the Condensed Financial Statements herein, management does not anticipate
that the ultimate liabilities, if any, arising from such current proceedings
would have a material effect on Southern Company's financial statements. See
Notes (B) and (C) to the Condensed Financial Statements herein for a discussion
of various other contingencies, regulatory matters, and other matters being
litigated which may affect future earnings potential.
Litigation
Southern Company
In January 2017, a securities class action complaint was filed against Southern
Company, certain of its officers, and certain former Mississippi Power officers
in the U.S. District Court for the Northern District of Georgia by Monroe County
Employees' Retirement System on behalf of all persons who purchased shares of
Southern Company's common stock between April 25, 2012 and October 29, 2013. The
complaint alleges that Southern Company, certain of its officers, and certain
former Mississippi Power officers made materially false and misleading
statements regarding the Kemper County energy facility in violation of certain
provisions under the Securities Exchange Act of 1934, as amended. The complaint
seeks, among other things, compensatory damages and litigation costs and
attorneys' fees. In 2017, the plaintiffs filed an amended complaint that
provided additional detail about their claims, increased the purported class
period by one day, and added certain other former Mississippi Power officers as

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defendants. Also in 2017, the defendants filed a motion to dismiss the
plaintiffs' amended complaint with prejudice, to which the plaintiffs filed an
opposition. In March 2018, the court issued an order granting, in part, the
defendants' motion to dismiss. The court dismissed certain claims against
certain officers of Southern Company and Mississippi Power and dismissed the
allegations related to a number of the statements that plaintiffs challenged as
being false or misleading. In April 2018, the defendants filed a motion for
reconsideration of the court's order, seeking dismissal of the remaining claims
in the lawsuit. In August 2018, the court denied the motion for reconsideration
and denied a motion to certify the issue for interlocutory appeal. On August 22,
2019, the court certified the plaintiffs' proposed class. On September 5, 2019,
the defendants filed a petition for interlocutory appeal of the class
certification order with the U.S. Court of Appeals for the Eleventh Circuit.
In February 2017, Jean Vineyard and Judy Mesirov each filed a shareholder
derivative lawsuit in the U.S. District Court for the Northern District of
Georgia. Each of these lawsuits names as defendants Southern Company, certain of
its directors, certain of its officers, and certain former Mississippi Power
officers. In 2017, these two shareholder derivative lawsuits were consolidated
in the U.S. District Court for the Northern District of Georgia. The complaints
allege that the defendants caused Southern Company to make false or misleading
statements regarding the Kemper County energy facility cost and schedule.
Further, the complaints allege that the defendants were unjustly enriched and
caused the waste of corporate assets and also allege that the individual
defendants violated their fiduciary duties. Each plaintiff seeks to recover, on
behalf of Southern Company, unspecified actual damages and, on each plaintiff's
own behalf, attorneys' fees and costs in bringing the lawsuit. Each plaintiff
also seeks certain changes to Southern Company's corporate governance and
internal processes. In April 2018, the court entered an order staying this
lawsuit until 30 days after the resolution of any dispositive motions or any
settlement, whichever is earlier, in the securities class action.
In May 2017, Helen E. Piper Survivor's Trust filed a shareholder derivative
lawsuit in the Superior Court of Gwinnett County, Georgia that names as
defendants Southern Company, certain of its directors, certain of its officers,
and certain former Mississippi Power officers. The complaint alleges that the
individual defendants, among other things, breached their fiduciary duties in
connection with schedule delays and cost overruns associated with the
construction of the Kemper County energy facility. The complaint further alleges
that the individual defendants authorized or failed to correct false and
misleading statements regarding the Kemper County energy facility schedule and
cost and failed to implement necessary internal controls to prevent harm to
Southern Company. The plaintiff seeks to recover, on behalf of Southern Company,
unspecified actual damages and disgorgement of profits and, on its behalf,
attorneys' fees and costs in bringing the lawsuit. The plaintiff also seeks
certain unspecified changes to Southern Company's corporate governance and
internal processes. In May 2018, the court entered an order staying this lawsuit
until 30 days after the resolution of any dispositive motions or any settlement,
whichever is earlier, in the securities class action. On August 5, 2019, the
court granted a motion filed by the plaintiff on July 17, 2019 to substitute a
new named plaintiff, Martin J. Kobuck, in place of Helen E. Piper Survivor's
Trust.
Southern Company believes these legal challenges have no merit; however, the
ultimate outcome of these matters cannot be determined at this time.
Georgia Power
In 2011, plaintiffs filed a putative class action against Georgia Power in the
Superior Court of Fulton County, Georgia alleging that Georgia Power's
collection in rates of amounts for municipal franchise fees (which fees are paid
to municipalities) exceeded the amounts allowed in orders of the Georgia PSC and
alleging certain state tort law claims. In 2016, the Georgia Court of Appeals
reversed the trial court's previous dismissal of the case and remanded the case
to the trial court. Georgia Power filed a petition for writ of certiorari with
the Georgia Supreme Court, which was granted in 2017. In June 2018, the Georgia
Supreme Court affirmed the judgment of the Georgia Court of Appeals and remanded
the case to the trial court for further proceedings. Following a motion by
Georgia Power, on February 13, 2019, the Superior Court of Fulton County ordered
the parties to submit petitions to the Georgia PSC for a declaratory ruling to
address certain terms the court previously held were ambiguous as used in the
Georgia PSC's orders. The order entered by the Superior Court of Fulton County
also conditionally certified the proposed class. In March 2019, Georgia Power
and the plaintiffs filed petitions with the Georgia PSC seeking

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confirmation of the proper application of the municipal franchise fee schedule
pursuant to the Georgia PSC's orders. On October 23, 2019, the Georgia PSC
issued an order that found and concluded that Georgia Power has appropriately
implemented the municipal franchise fee schedule. On March 6, 2019, Georgia
Power filed a notice of appeal with the Georgia Court of Appeals regarding the
Superior Court of Fulton County'sFebruary 2019 order. Georgia Power believes
the plaintiffs' claims have no merit. The amount of any possible losses cannot
be calculated at this time because, among other factors, it is unknown whether
conditional class certification will be upheld and the ultimate composition of
any class and whether any losses would be subject to recovery from any
municipalities. The ultimate outcome of this matter cannot be determined at this
time.
Mississippi Power
In May 2018, Southern Company and Mississippi Power received a notice of dispute
and arbitration demand filed by Martin Product Sales, LLC (Martin) based on two
agreements, both related to Kemper IGCC byproducts for which Mississippi Power
provided termination notices in 2017. Martin alleges breach of contract, breach
of good faith and fair dealing, fraud and misrepresentation, and civil
conspiracy and makes a claim for damages in the amount of approximately $143
million, as well as additional unspecified damages, attorney's fees, costs, and
interest. In the first quarter 2019, Mississippi Power and Southern Company
filed motions to dismiss, which were denied by the arbitration panel on May 10,
2019. Southern Company believes this legal challenge has no merit; however, an
adverse outcome could have a material impact on Southern Company's financial
statements. The ultimate outcome of this matter cannot be determined at this
time.
Mississippi Power
In conjunction with Southern Company's sale of Gulf Power, Mississippi Power and
Gulf Power have committed to seek a restructuring of their 50% undivided
ownership interests in Plant Daniel such that each of them would, after the
restructuring, own 100% of a generating unit. On January 15, 2019, Gulf Power
provided notice to Mississippi Power that Gulf Power will retire its share of
the generating capacity of Plant Daniel on January 15, 2024. Mississippi Power
has the option to purchase Gulf Power's ownership interest for $1 on January 15,
2024, provided that Mississippi Power exercises the option no later than 120
days prior to that date. Mississippi Power is assessing the potential
operational and economic effects of Gulf Power's notice. The ultimate outcome of
these matters remains subject to completion of Mississippi Power's evaluations
and applicable regulatory approvals, including by the FERC and the Mississippi
PSC, and cannot be determined at this time. See Note (K) to the Condensed
Financial Statements under "Southern Company" herein for information regarding
the sale of Gulf Power.
Southern Company Gas
See Note 3 to the financial statements in Item 8 of the Form 10-K under "Other
Matters - Southern Company Gas" for information on a natural gas storage
facility consisting of two salt dome caverns in Louisiana.
As of September 30, 2019, management no longer plans to obtain the core samples
during 2020 that are necessary to determine the composition of the sheath
surrounding the edge of the salt dome. Core sampling is a requirement of the
Louisiana Department of Natural Resources to put the cavern back in service; as
a result, the cavern will not return to service by 2021. This change in plan,
which affects the future operation of the entire storage facility, resulted in a
pre-tax impairment charge of $92 million ($65 million after-tax). Southern
Company Gas will continue to monitor the pressure and overall structural
integrity of the entire facility pending any future decisions regarding
decommissioning.
Southern Company Gas has two other natural gas storage facilities located in
California and Texas, which could be impacted by ongoing changes in the U.S.
natural gas storage market. Recent sales of natural gas storage facilities have
resulted in losses for the sellers and may imply an impact on future rates
and/or asset values. Sustained diminished natural gas storage values could
trigger impairment of either of these natural gas storage facilities, which have
a combined net book value of $328 million at September 30, 2019.
The ultimate outcome of these matters cannot be determined at this time, but
could have a material impact on Southern Company's financial statements.

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ACCOUNTING POLICIES
Application of Critical Accounting Policies and Estimates
Southern Company prepares its consolidated financial statements in accordance
with GAAP. Significant accounting policies are described in Notes 1, 5, and 6 to
the financial statements in Item 8 of the Form 10-K. In the application of these
policies, certain estimates are made that may have a material impact on Southern
Company's results of operations and related disclosures. Different assumptions
and measurements could produce estimates that are significantly different from
those recorded in the financial statements. See MANAGEMENT'S DISCUSSION AND
ANALYSIS - ACCOUNTING POLICIES - "Application of Critical Accounting Policies
and Estimates" of Southern Company in Item 7 of the Form 10-K for a complete
discussion of Southern Company's critical accounting policies and estimates.
Recently Issued Accounting Standards
See Note (A) to the Condensed Financial Statements herein for information
regarding Southern Company's recently adopted accounting standards.
FINANCIAL CONDITION AND LIQUIDITY
Overview
See MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL CONDITION AND LIQUIDITY -
"Overview" of Southern Company in Item 7 of the Form 10-K for additional
information. Southern Company's financial condition remained stable at
September 30, 2019. Southern Company intends to continue to monitor its access
to short-term and long-term capital markets as well as bank credit agreements to
meet future capital and liquidity needs. See "Capital Requirements and
Contractual Obligations," "Sources of Capital," and "Financing Activities"
herein for additional information.
Net cash provided from operating activities totaled $4.9 billion for the first
nine months of 2019, a decrease of $0.7 billion from the corresponding period in
2018. The decrease in net cash provided from operating activities was primarily
due to the timing of vendor payments and the impacts of the Gulf Power
disposition and the Southern Company Gas Dispositions. Net cash used for
investing activities totaled $1.1 billion for the first nine months of 2019
primarily due to the traditional electric operating companies' installation of
equipment to comply with environmental standards and construction of electric
generation, transmission, and distribution facilities and capital expenditures
for Southern Company Gas' infrastructure replacement programs, largely offset by
the proceeds from the sale of Gulf Power. Net cash used for financing activities
totaled $2.4 billion for the first nine months of 2019 primarily due to net
repayments of short-term bank debt and commercial paper and common stock
dividend payments, partially offset by net issuances of long-term debt. Cash
flows from financing activities vary from period to period based on capital
needs and the maturity or redemption of securities. See Notes (F) and (K) to the
Condensed Financial Statements herein for additional information.

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Significant balance sheet changes for the first nine months of 2019 include: • decreases in assets and liabilities held for sale of $5.1 billion and $3.2

billion, respectively, primarily related to the sale of Gulf Power;

• an increase of $0.9 billion in total property, plant, and equipment primarily

related to the traditional electric operating companies' installation of

equipment to comply with environmental standards and construction of electric

generation, transmission, and distribution facilities, net of $1.2 billion

and $1.0 billion reclassified to other regulatory assets and regulatory

assets associated with AROs, respectively, as a result of generating unit

retirements at Alabama Power and Georgia Power;

• an increase of $2.8 billion in total stockholders' equity primarily related

to the gain on the sale of Gulf Power;

• a decrease of $2.4 billion in notes payable related to net repayments of

short-term bank debt and commercial paper;

• increases in operating lease right-of-use assets, net of amortization and

operating lease obligations, each totaling $1.8 billion, recorded upon the

adoption of FASB ASC Topic 842, Leases;

• an increase of $1.5 billion in regulatory assets associated with AROs

primarily related to the reclassification of $1.0 billion from property,

plant, and equipment as a result of certain generating unit retirements at

Alabama Power and Georgia Power, as discussed above, and ARO revisions at

Alabama Power and Mississippi Power related to the CCR Rule;

• an increase of $1.5 billion in long-term debt (including amounts due within

one year) related to net issuances of long-term debt;

• an increase in cash and cash equivalents of $1.5 billion primarily related to

long-term debt issued during the third quarter 2019; and

• an increase of $1.2 billion in accumulated deferred income taxes primarily

related to the expected utilization of tax credit carryforwards in the 2019

tax year as a result of increased taxable income from the sale of Gulf Power.



See Notes (A), (B), (F), (G), (K), and (L) to the Condensed Financial Statements
herein for additional information.
At the end of the third quarter 2019, the market price of Southern Company's
common stock was $61.77 per share (based on the closing price as reported on the
NYSE) and the book value was $26.23 per share, representing a market-to-book
ratio of 235%, compared to $43.92, $23.91, and 184%, respectively, at the end of
2018. Southern Company's common stock dividend for the third quarter 2019 was
$0.62 per share compared to $0.60 per share in the third quarter 2018.
Capital Requirements and Contractual Obligations
See MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL CONDITION AND LIQUIDITY -
"Capital Requirements and Contractual Obligations" of Southern Company in Item 7
of the Form 10-K for a description of Southern Company's capital requirements
and contractual obligations. Approximately $3.3 billion will be required through
September 30, 2020 to fund maturities of long-term debt. See "Sources of
Capital" herein for additional information.
The construction programs are subject to periodic review and revision, and
actual construction costs may vary from these estimates because of numerous
factors. These factors include: changes in business conditions; changes in load
projections; changes in environmental laws and regulations; the outcome of any
legal challenges to environmental rules; changes in electric generating plants,
including unit retirements and replacements and adding or changing fuel sources
at existing electric generating units, to meet regulatory requirements; changes
in FERC rules and regulations; state regulatory agency approvals; changes in the
expected environmental compliance program; changes in legislation; the cost and
efficiency of construction labor, equipment, and materials; project scope and
design changes; delays in construction due to judicial or regulatory action;
storm impacts; and the cost of capital. In addition, there can be no assurance
that costs related to capital expenditures will be fully recovered.
Additionally, planned expenditures for plant acquisitions may vary due to market
opportunities and Southern Power's ability to

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execute its growth strategy. See Note 15 to the financial statements under
"Southern Power" in Item 8 of the Form 10-K and Note (K) to the Condensed
Financial Statements under "Southern Power" herein for additional information
regarding Southern Power's plant acquisitions and construction projects.
The construction program also includes Plant Vogtle Units 3 and 4, which
includes components based on new technology that only recently began initial
operation in the global nuclear industry at this scale and which may be subject
to additional revised cost estimates during construction. The ability to control
costs and avoid cost and schedule overruns during the development, construction,
and operation of new facilities is subject to a number of factors, including,
but not limited to, changes in labor costs, availability, and productivity;
challenges with management of contractors, subcontractors, or vendors; adverse
weather conditions; shortages, delays, increased costs, or inconsistent quality
of equipment, materials, and labor; contractor or supplier delay; nonperformance
under construction, operating, or other agreements; operational readiness,
including specialized operator training and required site safety programs;
engineering or design problems; design and other licensing-based compliance
matters, including the timely submittal by Southern Nuclear of the ITAAC
documentation for each unit and the related reviews and approvals by the NRC
necessary to support NRC authorization to load fuel; challenges with start-up
activities, including major equipment failure, system integration, or regional
transmission upgrades; and/or operational performance. See Note 2 to the
financial statements under "Georgia Power - Nuclear Construction" in Item 8 of
the Form 10-K and Note (B) to the Condensed Financial Statements under "Georgia
Power - Nuclear Construction" herein for information regarding Plant Vogtle
Units 3 and 4 and additional factors that may impact construction expenditures.
Sources of Capital
Southern Company intends to meet its future capital needs through operating cash
flows, borrowings from financial institutions, and debt and equity issuances in
the capital markets. Equity capital can be provided from any combination of
Southern Company's stock plans, private placements, or public offerings. The
amount and timing of additional equity and debt issuances in 2019, as well as in
subsequent years, will be contingent on Southern Company's investment
opportunities and the Southern Company system's capital requirements and will
depend upon prevailing market conditions and other factors. See "Capital
Requirements and Contractual Obligations" herein for additional information.
Except as described herein, the traditional electric operating companies,
Southern Power, and Southern Company Gas plan to obtain the funds required for
construction and other purposes from operating cash flows, external security
issuances, borrowings from financial institutions, and equity contributions or
loans from Southern Company. Southern Power also plans to utilize tax equity
partnership contributions, as well as funds resulting from its pending asset
sale. However, the amount, type, and timing of any future financings, if needed,
will depend upon prevailing market conditions, regulatory approval, and other
factors. See MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL CONDITION AND
LIQUIDITY - "Sources of Capital" of Southern Company in Item 7 of the Form 10-K
for additional information. Also see Note (K) to the Condensed Financial
Statements under "Southern Power" herein for additional information regarding
the pending sale of Plant Mankato.
In addition, in 2014, Georgia Power entered into a loan guarantee agreement with
the DOE and, in March 2019, entered into the Amended and Restated Loan Guarantee
Agreement, under which the proceeds of borrowings may be used to reimburse
Georgia Power for Eligible Project Costs incurred in connection with its
construction of Plant Vogtle Units 3 and 4. Under the Amended and Restated Loan
Guarantee Agreement, the DOE has agreed to guarantee the obligations of Georgia
Power under note purchase agreements among the DOE, Georgia Power, and the FFB
and related promissory notes which provide for two multi-advance term loan
facilities, under which Georgia Power may make term loan borrowings through the
FFB in an amount up to approximately $5.130 billion, provided that certain
conditions are met. At September 30, 2019, Georgia Power had borrowed $3.46
billion under the FFB Credit Facilities. See Notes (B) and (F) to the Condensed
Financial Statements under "Georgia Power - Nuclear Construction" and "DOE Loan
Guarantee Borrowings," respectively, herein for additional information.
Southern Company's current liabilities frequently exceed current assets because
of scheduled maturities of long-term debt and the periodic use of short-term
debt as a funding source, as well as significant seasonal fluctuations in

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cash needs. As of September 30, 2019, Southern Company's current liabilities
exceeded current assets by $0.6 billion, primarily due to long-term debt that is
due within one year and notes payable totaling $3.9 billion (including
approximately $0.6 billion at the parent company, $1.8 billion at Georgia Power,
$0.3 billion at Mississippi Power, $0.9 billion at Southern Power, and $0.3
billion at Southern Company Gas), partially offset by $2.9 billion of cash and
cash equivalents. To meet short-term cash needs and contingencies, the Southern
Company system has substantial cash flow from operating activities and access to
capital markets and financial institutions. Southern Company, the traditional
electric operating companies, Southern Power, and Southern Company Gas intend to
utilize operating cash flows, as well as commercial paper, lines of credit, bank
notes, and securities issuances, as market conditions permit, as well as, under
certain circumstances for the traditional electric operating companies, Southern
Power, and Southern Company Gas, equity contributions and/or loans from Southern
Company to meet their short-term capital needs.
Committed credit arrangements with banks at September 30, 2019 were as follows:
                                     Expires
Company                        2020   2022    2024      Total      Unused     Due within One Year
                                                          (in millions)
Southern Company(a)           $   -  $   -  $ 2,000$ 2,000$ 1,999    $                   -
Alabama Power                     3    525      800      1,328      1,328                        3
Georgia Power                     -      -    1,750      1,750      1,733                        -
Mississippi Power                 -    150        -        150        150                        -
Southern Power(b)                 -      -      600        600        591                        -
Southern Company Gas(c)           -      -    1,750      1,750      1,745                        -
Other                            30      -        -         30         30                       30

Southern Company Consolidated $ 33$ 675$ 6,900$ 7,608$ 7,576

  $                  33


(a) Represents the Southern Company parent entity.

(b) Does not include Southern Power Company's$120 million continuing letter of

credit facility for standby letters of credit expiring in 2021, of which $30

million was unused at September 30, 2019. Southern Power's subsidiaries are

not parties to its bank credit arrangement.

(c) Southern Company Gas, as the parent entity, guarantees the obligations of

Southern Company Gas Capital, which is the borrower of $1.25 billion of this

arrangement. Southern Company Gas' committed credit arrangement also includes

$500 million for which Nicor Gas is the borrower and which is restricted for

working capital needs of Nicor Gas. Pursuant to this multi-year credit

arrangement, the allocations between Southern Company Gas Capital and Nicor

Gas may be adjusted.



See Note 8 to the financial statements under "Bank Credit Arrangements" in Item
8 of the Form 10-K and Note (F) to the Condensed Financial Statements under
"Bank Credit Arrangements" herein for additional information.
Most of these bank credit arrangements, as well as the term loan arrangements of
Alabama Power, Georgia Power, and SEGCO, contain covenants that limit debt
levels and contain cross-acceleration or cross-default provisions to other
indebtedness (including guarantee obligations) that are restricted only to the
indebtedness of the individual company. Such cross-default provisions to other
indebtedness would trigger an event of default if the applicable borrower
defaulted on indebtedness or guarantee obligations over a specified threshold.
Such cross-acceleration provisions to other indebtedness would trigger an event
of default if the applicable borrower defaulted on indebtedness, the payment of
which was then accelerated. At September 30, 2019, Southern Company, the
traditional electric operating companies, Southern Power Company, Southern
Company Gas, Nicor Gas, and SEGCO were in compliance with all such covenants.
None of the bank credit arrangements contain material adverse change clauses at
the time of borrowings.
Subject to applicable market conditions, Southern Company and its subsidiaries
expect to renew or replace their bank credit arrangements as needed, prior to
expiration. In connection therewith, Southern Company and its subsidiaries may
extend the maturity dates and/or increase or decrease the lending commitments
thereunder.

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A portion of the unused credit with banks is allocated to provide liquidity
support to the revenue bonds of the traditional electric operating companies and
the commercial paper programs of Southern Company, the traditional electric
operating companies, Southern Power Company, Southern Company Gas, Nicor Gas,
and SEGCO. The amount of variable rate revenue bonds of the traditional electric
operating companies outstanding requiring liquidity support as of September 30,
2019 was approximately $1.4 billion. In addition, at September 30, 2019, Alabama
Power had approximately $87 million of revenue bonds outstanding that are
required to be remarketed within the next 12 months.
The registrants, Nicor Gas, and SEGCO make short-term borrowings primarily
through commercial paper programs that have the liquidity support of the
committed bank credit arrangements described above. Short-term borrowings are
included in notes payable in the balance sheets.
Details of short-term borrowings were as follows:
                              Short-term Debt at
                              September 30, 2019                 Short-term Debt During the Period(*)
                                             Weighted                          Weighted
                                              Average          Average         Average          Maximum
                            Amount           Interest          Amount          Interest          Amount
                          Outstanding          Rate          Outstanding         Rate         Outstanding
                         (in millions)                      (in millions)                    (in millions)
Commercial paper       $           292            2.2 %    $         976           2.5 %    $        1,509
Short-term bank debt               250            2.5 %              250           2.7 %               250
Total                  $           542            2.4 %    $       1,226           2.6 %

(*) Average and maximum amounts are based upon daily balances during the

three-month period ended September 30, 2019.



Southern Company believes the need for working capital can be adequately met by
utilizing commercial paper programs, lines of credit, bank term loans, and
operating cash flows.
Credit Rating Risk
At September 30, 2019, Southern Company and its subsidiaries did not have any
credit arrangements that would require material changes in payment schedules or
terminations as a result of a credit rating downgrade.
There are certain contracts that could require collateral, but not accelerated
payment, in the event of a credit rating change of certain subsidiaries to BBB
and/or Baa2 or below. These contracts are for physical electricity and natural
gas purchases and sales, fuel purchases, fuel transportation and storage, energy
price risk management, transmission, interest rate management, and construction
of new generation at Plant Vogtle Units 3 and 4.
The maximum potential collateral requirements under these contracts at
September 30, 2019 were as follows:
                      Maximum Potential
                          Collateral
Credit Ratings           Requirements
                        (in millions)
At BBB and/or Baa2   $                32
At BBB- and/or Baa3  $               433
At BB+ and/or Ba1(*) $             1,894

(*) Any additional credit rating downgrades at or below BB- and/or Ba3 could

increase collateral requirements up to an additional $44 million.



Generally, collateral may be provided by a Southern Company guaranty, letter of
credit, or cash. Additionally, a credit rating downgrade could impact the
ability of Southern Company and its subsidiaries to access capital markets, and
would be likely to impact the cost at which they do so.

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On August 1, 2019, Moody's upgraded Mississippi Power's senior unsecured
long-term debt rating to Baa2 from Baa3 and maintained the positive rating
outlook.
On September 12, 2019, S&P upgraded the senior unsecured long-term debt rating
of Alabama Power to A from A-, the long-term issuer rating of Nicor Gas to A
from A-, and the senior secured debt rating of Nicor Gas to A+ from A. The
ratings outlooks remained negative.
As a result of the Tax Reform Legislation, certain financial metrics, such as
the funds from operations to debt percentage, used by the credit rating agencies
to assess Southern Company and its subsidiaries may be negatively impacted.
Southern Company and most of its regulated subsidiaries have taken actions to
mitigate the resulting impacts, which, among other alternatives, include
adjusting capital structure. Absent actions by Southern Company and its
subsidiaries that fully mitigate the impacts, the credit ratings of Southern
Company and certain of its subsidiaries could be negatively affected. See Note 2
to the financial statements in Item 8 of the Form 10-K and Note (B) to the
Condensed Financial Statements herein for additional information related to
state PSC or other regulatory agency actions, including approvals and requests
for additional or continued adjustments of capital structure related to the Tax
Reform Legislation for Alabama Power, Georgia Power, Atlanta Gas Light, and
Nicor Gas, which are expected to help mitigate the potential adverse impacts to
certain of their credit metrics.
Financing Activities
During the first nine months of 2019, Southern Company issued approximately 15.0
million shares of common stock primarily through employee equity compensation
plans and received proceeds of approximately $623 million.
In August 2019, Southern Company issued 34.5 million 2019 Series A Equity Units
(Equity Units), initially in the form of corporate units (Corporate Units), at a
stated amount of $50 per Corporate Unit, for a total stated amount of $1.725
billion. Net proceeds from the issuance were approximately $1.682 billion. Each
Corporate Unit is comprised of (i) a 1/40 undivided beneficial ownership
interest in $1,000 principal amount of Southern Company's Series 2019A
Remarketable Junior Subordinated Notes due 2024, (ii) a 1/40 undivided
beneficial ownership interest in $1,000 principal amount of Southern Company's
Series 2019B Remarketable Junior Subordinated Notes due 2027, and (iii) a stock
purchase contract, which obligates the holder to purchase from Southern Company,
no later than August 1, 2022, a certain number of shares of Southern Company's
common stock for $50 in cash. See Note (F) to the Condensed Financial Statements
under "Equity Units" herein for additional information.

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                   SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table outlines the long-term debt financing activities for Southern Company and its subsidiaries for the first nine months of 2019:

                                                      Revenue Bond
                                    Senior Note       Issuances and         Revenue Bond           Other
                     Senior         Maturities,        Reofferings          Maturities,          Long-Term         Other Long-Term Debt
                      Note         Redemptions,       of Purchased        Redemptions, and          Debt                Redemptions
Company             Issuances     and Repurchases         Bonds             Repurchases          Issuances           and Maturities(a)
                                                                        (in millions)
Southern
Company(b)        $         -     $       2,400     $             -     $                -     $      1,725     $                -
Alabama Power             600               200                   -                      -                -                      1
Georgia Power             750                 -                 584                    223              835                     11
Mississippi Power           -                 -                  43                      -                -                      -
Southern Company
Gas                         -               300                   -                      -              200                     50
Other                       -                 -                   -                     25                -                     14
Elimination(c)              -                 -                   -                      -                -                     (7 )
Southern Company
Consolidated      $     1,350$       2,900     $           627     $              248     $      2,760     $               69

(a) Includes reductions in finance lease obligations resulting from cash payments

under finance leases.

(b) Represents the Southern Company parent entity.

(c) Represents reductions in affiliate finance lease obligations at Georgia

Power, which are eliminated in Southern Company's consolidated financial

statements.



Except as otherwise described herein, Southern Company and its subsidiaries used
or will use the proceeds of debt issuances for their redemptions and maturities
shown in the table above, to repay short-term indebtedness, and for general
corporate purposes, including working capital. The subsidiaries also used or
will use the proceeds for their construction programs.
In January 2019, Southern Company repaid a $250 million short-term uncommitted
bank credit arrangement and a $1.5 billion short-term floating rate bank loan.
Also in January 2019, through cash tender offers, Southern Company repurchased
and retired approximately $522 million of the $1.0 billion aggregate principal
amount outstanding of its 1.85% Senior Notes due July 1, 2019 (1.85% Notes),
approximately $180 million of the $350 million aggregate principal amount
outstanding of its Series 2014B 2.15% Senior Notes due September 1, 2019 (Series
2014B Notes), and approximately $504 million of the $750 million aggregate
principal amount outstanding of its Series 2018A Floating Rate Notes due
February 14, 2020 (Series 2018A Notes), for an aggregate purchase price,
excluding accrued and unpaid interest, of approximately $1.2 billion. In
addition, following the completion of the cash tender offers, in February 2019,
Southern Company completed the redemption of all of the Series 2018A Notes,
1.85% Notes, and Series 2014B Notes remaining outstanding.
In September 2019, Southern Company redeemed all $300 million aggregate
principal amount of its Series 2017A Floating Rate Senior Notes due September
30, 2020.
As reflected in the table above, in March 2019, Georgia Power made additional
borrowings under the FFB Credit Facilities in an aggregate principal amount of
$835 million at an interest rate of 3.213% through the final maturity date of
February 20, 2044. The proceeds were used to reimburse Georgia Power for
Eligible Project Costs relating to the construction of Plant Vogtle Units 3 and
4.

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  Table of Contents
                   SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In June 2019, Georgia Power entered into two short-term floating rate bank loans
in aggregate principal amounts of $125 million each, both of which bear interest
based on one-month LIBOR.
In May 2019, Southern Power repaid at maturity a $100 million aggregate
principal amount short-term bank loan.
In August 2019, Nicor Gas issued $200 million aggregate principal amount of
first mortgage bonds in a private placement. Nicor Gas entered into an agreement
to issue an additional $100 million aggregate principal amount of first mortgage
bonds on October 30, 2019.
In addition to any financings that may be necessary to meet capital requirements
and contractual obligations, Southern Company and its subsidiaries plan to
continue, when economically feasible, a program to retire higher-cost securities
and replace these obligations with lower-cost capital if market conditions
permit.

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Table of Contents

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